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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, 1995
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, $0.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK, $0.01 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.
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The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 1, 1996, was $2,391,730,000.
The number of shares outstanding of each of the Registrant's classes of common
stock as of March 1, 1996:
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TITLE OF CLASS NUMBER OF SHARES
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Common Stock, $0.01 par value 42,109,984
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DOCUMENTS INCORPORATED BY REFERENCE
The Company's Consolidated Financial Statements for the fiscal year ended
December 31, 1995, 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 16, 1996, are incorporated by reference into Part III of this
Report.
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PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES RELATING TO THE FUTURE FINANCIAL PERFORMANCE OF CHIRON CORPORATION
(THE "COMPANY" OR "CHIRON"), AND ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY.
IN EVALUATING SUCH STATEMENTS, STOCKHOLDERS AND INVESTORS SHOULD SPECIFICALLY
CONSIDER THE VARIOUS FACTORS IDENTIFIED UNDER THE CAPTION "FACTORS THAT MAY
AFFECT FUTURE OPERATING RESULTS" CONTAINED IN THE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN CHIRON'S
CONSOLIDATED FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K,
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY
SUCH FORWARD-LOOKING STATEMENTS.
Chiron is a diversified, science-driven healthcare company that 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 four human
healthcare markets: diagnostics, including immunodiagnostics, critical care
diagnostics and new quantitative probe tests; therapeutics, with an emphasis on
oncology, serious infectious diseases and critical care diseases; pediatric and
adult vaccines; and ophthalmic surgical products for the correction of vision.
Chiron also develops or acquires new technologies, employing these technologies
to discover new products for the Company or for its partners. For example,
Chiron is developing a new generation of chemical therapeutics through advanced
techniques of drug design and discovery and is conducting an active program in
gene therapy.
Effective January 1, 1995, Chiron began a biotechnology partnership with
Ciba-Geigy Limited, of Basel, Switzerland ("Ciba") whereby Ciba acquired a 49.9
percent ownership interest in Chiron common stock. At the same time, Chiron
acquired Ciba's Ciba Corning Diagnostics Corp. ("CCD") business and Ciba's
interests in Chiron Biocine Company (formerly The Biocine Company) and Biocine
S.p.A. (through JV Vax B.V., a Netherlands company). In addition, Chiron and
Ciba agreed to cooperate in research, development, manufacturing and marketing
of biotechnology products on an arms-length basis, while remaining independent
to pursue other opportunities. For a further description of the partnership with
Ciba, see Part II, Item 8., Note 2 of Notes to Consolidated Financial
Statements. Chiron operates through the following business units: Chiron
Diagnostics, which includes the CCD business, quantitative probe tests and an
interest in a joint immunodiagnostic business; Chiron Biocine, a vaccine
business which includes Biocine S.p.A.; Chiron Therapeutics; and Chiron Vision,
the Company's ophthalmic business. A fifth business unit, Chiron Technologies,
manages the Company's research and clinical development programs other than
diagnostics and vaccines and develops new technologies with potential utility
throughout Chiron.
Chiron was incorporated in California in 1981 and reincorporated in Delaware
in 1987. A global organization with facilities on four continents, Chiron's
corporate headquarters is located at 4560 Horton Street, Emeryville, California
94608-2916, and its telephone number at that address is (510) 655-8730.
CHIRON DIAGNOSTICS
Chiron, through its Chiron Diagnostics business unit and its wholly-owned
subsidiary CCD (collectively "Chiron Diagnostics"), is one of the world's
largest providers of critical blood analyte systems used to measure blood gases,
blood electrolytes and metabolites. These systems are used by hospitals to
diagnose and monitor patients in critical care settings. Chiron Diagnostics also
markets the ACS:180-Registered Trademark- and ACS:180 Plus-TM-, which are
automated, high-throughput random access immunodiagnostic instrument systems
used by hospital and reference laboratories to detect and measure thyroid,
anemia, fertility, cancer and STAT cardiac indicators.
Chiron Diagnostics develops branched DNA ("bDNA") probe tests to quantify
levels of virus and other indicators of disease. Clinical evidence suggests that
Chiron's bDNA probe tests may have utility in predicting disease progression,
selection of patients for treatment based on probability of
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response and monitoring response to therapy. Chiron is selling bDNA probe tests
for human immunodeficiency virus ("HIV"), hepatitis C virus ("HCV"), and
hepatitis B virus ("HBV") for Research Use Only in the United States and Europe.
The United States Food and Drug Administration ("FDA") has accepted for review
Chiron's application to market its bDNA probe test for HIV in the United States.
Chiron has licensed rights to sell bDNA probe tests in Japan and Taiwan to
Daiichi Pure Chemicals Co., Ltd. ("Daiichi"). Daiichi currently markets Chiron's
Quantiplex-TM- bDNA tests for HCV and HBV in Japan.
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. The joint business sells a full line of tests
required to screen blood for hepatitis viruses and retroviruses, and provides
confirmatory tests and microplate-based instrument systems to automate test
performance and data collection. Chiron and Ortho share equally in the pretax
operating earnings generated by the joint business. The joint business holds the
immunodiagnostic rights to Chiron's hepatitis and retrovirus technology and
receives royalty payments for the sale of HCV tests by Abbott Laboratories
("Abbott") and Pasteur Sanofi Diagnostics. In 1995, Chiron and Ortho began a
collaboration with Genelabs Technologies, Inc. ("Genelabs") regarding hepatitis
G virus. Under the terms of the collaboration agreement, the joint business
received certain immunodiagnostic rights to the Genelabs technology. Chiron also
has an option to share equally in the pretax operating earnings generated by
Johnson & Johnson's home HIV test, currently under review by the FDA.
CHIRON BIOCINE
Chiron Biocine, headquartered in Emeryville with operations in Siena, Italy,
is the Company's business to develop and market new vaccines. Chiron Biocine's
present 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, South America, and to international health services
such as the World Health Organization. Among its products is a new genetically
engineered acellular pertussis (whooping cough) vaccine, combined with
diphtheria and tetanus ("DTaP"), currently marketed in Italy. Chiron Biocine is
preparing applications to market the DTaP vaccine in the United States and
Europe, based on the results of large-scale government-sponsored trials in Italy
that showed the Chiron acellular pertussis vaccine is safer and more effective
than a current whole-cell pertussis vaccine.
Chiron Biocine is developing a new generation of vaccines for serious adult
infections such as herpes simplex virus, type 2 ("HSV-2") or genital herpes,
cytomegalovirus ("CMV") and HCV. These vaccines utilize genetically engineered
antigens which are displayed in a manner that mimics the appearance of the
actual agent, combined in a formulation with adjuvants that amplify the immune
response. In 1996, Chiron Biocine announced that, based on a preliminary review
of clinical trial data, a vaccine formulation designed to treat HSV-2 had a
statistically significant benefit on several disease indicators but did not
reach statistical significance on its primary endpoint. A separate Phase 3 trial
of a vaccine designed to prevent HSV-2 is underway and scheduled to be completed
in 1996. Phase 2 trials of a CMV vaccine are underway in the United States. A
Phase 1 trial of an HIV vaccine is underway in Thailand, in collaboration with
the Royal Army and the United States Department of the Army. A vaccine for HCV
is in preclinical trials. Chiron Biocine is also collaborating with NABI in the
development of a new family of human immunotherapeutic products, based on the
vaccines of Chiron Biocine and initially focused on the development of a
hyperimmune globulin product to prevent and treat CMV infections.
In February 1996, Chiron and Behringwerke AG, a subsidiary of Hoechst AG,
entered into an agreement whereby Chiron will purchase a 49 percent interest in
the human vaccine business of Behringwerke AG for Deutsche mark 171.5 million in
cash. Chiron has an option to purchase the remaining 51 percent in March 1998,
1999, 2000 or 2001, and Behringwerke AG has the option to have Chiron acquire
the remaining 51 percent interest in March 2001. Behringwerke AG, one of the
largest
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vaccine suppliers in Germany, manufactures and markets vaccines for flu,
diphtheria, tetanus, pertussis, rabies, tick-borne encephalitis, tuberculosis,
cholera, an oral vaccine for polio, and, under license from other companies,
distributes vaccines in Germany for measles, mumps, rubella, hepatitis B,
typhoid fever, pneumonia, haemophilus influenza as well as an inactivated polio
vaccine.
During the period of mutual ownership, Chiron and Behringwerke AG will
operate the vaccine business as a joint venture. The joint venture is designed
to provide an outlet for Chiron Biocine's new vaccines in the German market and
to expand its presence in the European vaccine market. Chiron will report its
share of the joint venture's results as equity in earnings of unconsolidated
joint businesses. Consummation of the transaction is subject to certain
conditions, including regulatory approvals and customary conditions prior to
closing.
In addition to its Chiron Biocine activities, Chiron has received royalty
payments since 1986 from the sales of Recombivax-Registered Trademark- HB, a
vaccine against HBV developed, manufactured and marketed by Merck & Co., Inc.
("Merck"), using technology developed by Chiron.
Recombivax-Registered Trademark- HB was the first vaccine using genetic
engineering to be licensed by the FDA for human use.
CHIRON THERAPEUTICS
Chiron Therapeutics, Chiron's hospital and large clinic-based business in
the United States and Europe, markets products for use principally by
oncologists. Its leading product is Proleukin-Registered Trademark-
(aldesleukin), interleukin-2, the first treatment approved for metastatic kidney
cancer. In the United States, Chiron also markets generic chemotherapy drugs as
part of a joint venture with Ben Venue Laboratories, Inc. In addition, on behalf
of Ciba Pharmaceuticals, Chiron promotes Aredia-Registered Trademark-
(pamidronate disodium for injection), a drug to treat hypercalcimia of
malignancy, Paget's disease and osteolytic bone lesions of multiple myeloma.
Chiron Therapeutics manufactures Betaseron-Registered Trademark- (interferon
beta-1b) for Berlex Laboratories, Inc., a United States affiliate of Schering AG
of Berlin, Germany ("Schering"), which markets the product in the United States
and Canada. In Europe, Schering is marketing the product under the trade name
Betaferon-TM-, manufactured by Boehringer Ingelheim, for which Chiron will
receive a royalty.
CHIRON VISION
Chiron Vision is the Company's business in ophthalmic surgical products,
with sales in the United States and 15 other countries. Chiron Vision's line of
products for the surgical correction of vision includes both hard and foldable
intraocular lenses for cataract replacement surgeries, phacoemulsification
instruments for small-incision cataract surgeries, and refractive surgical
instruments including corneal shapers and excimer lasers. In March 1995, Chiron
Vision expanded its presence in the United States and European markets for
cataract surgery products through the acquisition of the ophthalmic surgical
division of IOLAB, a Johnson & Johnson company. Following the acquisition of
IOLAB, Chiron Vision initiated a global restructuring of the combined operations
to enhance manufacturing, marketing and management efficiencies.
In March 1996, Chiron Vision received FDA approval to begin marketing the
Vitrasert-TM- Implant to deliver ganciclovir for the treatment of CMV retinitis
in people with AIDS. In Phase 3 clinical trials, the Vitrasert-TM- Implant
demonstrated a clinically important improvement over intravenously administered
ganciclovir in delaying the progression of CMV in these individuals. Chiron
Vision is co-marketing the Vitrasert-TM- Implant worldwide, including in the
United States and Europe, with Hoffmann-La Roche, Inc. ("Roche"), which
manufactures and markets ganciclovir.
CHIRON TECHNOLOGIES
Chiron Technologies applies enabling technologies in combinatorial
chemistry, gene therapy and recombinant proteins to develop products intended
for use as therapeutics, and develops new technologies with potential utility
throughout the Company. Chiron Technologies combines the Company's 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. Chiron also engages in collaborations to create
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libraries of compounds for characterization and screening with other
pharmaceutical companies, including Janssen Pharmaceutica NV, a Johnson &
Johnson company, and Ciba, as well as with organizations in other fields such as
Dow Elanco, an agricultural company.
Chiron augmented its program in gene therapy with the acquisition in
September 1995 of Viagene, Inc., now known as Chiron Viagene. Through this
program, Chiron is developing gene therapy and gene transfer products, and drug
activation technology for the prevention and treatment of a broad range of human
diseases. Chiron's gene therapy program includes collaborations with Ribozyme
Pharmaceuticals, Inc., Progenitor, Inc., and the Virus Research Institute.
Chiron, in collaboration with Johnson & Johnson, is developing a series of
growth factors to treat topical wounds. In September 1995, Chiron and Johnson &
Johnson announced that the two companies have reviewed favorable preliminary
Phase 3 clinical trial data on their wound healing agent
Regranex-Registered Trademark- (becaplermin), a formulation containing
recombinant human platelet-derived growth factor (rhPDGF), and are proceeding
with regulatory applications. Chiron manufactures rhPDGF in bulk for final
formulation into Regranex-Registered Trademark-. Johnson & Johnson is
responsible for clinical development, regulatory matters, marketing and sales.
Chiron is collaborating with Cephalon, Inc. ("Cephalon") to develop and
market products for the treatment of neurological disorders. During 1995, Chiron
and Cephalon announced that Myotrophin-TM- (insulin-like growth factor, IGF-1)
had shown a favorable result in Phase 2/3 trials in the United States and Europe
for the treatment of amytrophic lateral sclerosis (ALS or Lou Gehrig's Disease).
Subsequently, the FDA asked for further information about these trials. If the
requested information is deemed insufficient by the FDA, additional clinical
trials may be required before a marketing application can be submitted by Chiron
and Cephalon. Following an analysis of data from a Phase 2 trial, Chiron has
decided to discontinue its own clinical development of IGF-1 for acute renal
failure. Chiron is considering further clinical development of IGF-1.
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 2 clinical trial studying the use of TFPI in microvascular surgery.
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 the Chiron Diagnostics business is Abbott. In addition,
although initial patents for the Chiron HCV invention have been issued and are
being upheld through litigation, the joint business faces continued competition
from a number of unlicensed sellers of HCV tests including Murex Diagnostics,
Ltd., a subsidiary of International Murex Technologies Corp., and United
Biomedical, Inc. (see Part I, Item 3.). Other companies in Japan and Europe have
introduced, or may be preparing to introduce, competing HCV tests. In addition
to Abbott, Chiron faces competition in the immunoassay market from Boehringer
Mannheim and Johnson & Johnson, which purchased the diagnostic and clinical
chemistry business of Eastman Kodak. Chiron's bDNA probe tests compete with
products from affiliates of Roche (which is developing tests based on polymerase
chain reaction), Abbott and Digene
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and may compete with Gene-Trak Systems and Gen-Probe Incorporated. In the
critical blood analyte market, Chiron Diagnostics faces competition from
Radiometer Medical A/S and Instrumentation Laboratory Company.
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. ("Connaught"), and
Pasteur Merieux Serums et Vaccins (which separately has a strategic alliance
with Merck), both of which sell pediatric vaccines. SmithKline and Connaught
both have acellular pertussis vaccines that demonstrated superiority compared to
a currently marketed whole-cell pertussis vaccine, and have indicated that their
United States regulatory applications for such vaccines are completed.
SmithKline and Lederle are developing vaccines for genital herpes.
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. Aredia-Registered Trademark-
may face competition from other bone growth factors.
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.; Pharmacia AB; Storz
Instrument Company, a subsidiary of American Home Products; and Staar Surgical
Co. Gilead Sciences, Inc., has a systemically injectable pharmaceutical that may
compete against Chiron Vision's ganciclovir Vitrasert-TM- Implant, and which has
been recommended for regulatory approval. Summit Technology, Inc. has received
approval, and has begun marketing in the United States, an excimer laser to
correct vision. VISX, Inc., which has cross-licensed its patents with those of
Chiron Vision outside the United States, has an excimer laser under review at
the FDA.
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. Of these two products, a recombinant beta interferon from
Biogen, Inc. ("Biogen") has been recommended for regulatory approval in the
United States. Other companies have entered, or are preparing to enter, products
into clinical trials for multiple sclerosis. In Europe, Schering's product,
Betaferon-TM-, faces competition from Ares Serono. In Italy and Spain, Ares
Serono sells an extracted form of beta interferon which is used for, among other
purposes, treatment of 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
more active in seeking patent protection and licensing revenues for their
discoveries. 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.
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MANUFACTURING
Chiron currently has licensed manufacturing facilities in Emeryville,
California, for the production of biologicals. During 1995, construction was
completed on additional manufacturing facilities in Vacaville, California.
Chiron also has manufacturing facilities in Puerto Rico and Amsterdam, The
Netherlands. During 1995, the Company began producing certain quantities of
rhPDGF and TFPI in the Vacaville facility and anticipates utilizing the St.
Louis facility to produce clinical grade materials for Phase 1, 2, and 3
clinical trials for HSV, CMV and HIV products. Due to lower than expected
domestic commercial demand for the Company's Betaseron-Registered Trademark-
product, the Puerto Rico facility was idled and the regulatory approval process
for Betaseron-Registered Trademark- fermentation in the Amsterdam facility was
suspended. The Amsterdam facility is currently being used for the production of
bacterial vaccines and clinical grade materials and as a pilot plant for process
development.
In 1995, the Company began construction activities for a manufacturing
facility in Italy to be used in the production of bacterial vaccines, including
acellular pertussis. Regulatory approvals for each of the facilities described
above are necessary before Chiron can begin any new commercial production.
Failure to obtain all necessary approvals and permits would materially and
adversely affect the continued development and introduction of Chiron products.
Following the acquisition of IOLAB, Chiron Vision consolidated the majority
of its domestic operations at IOLAB's facilities in Claremont, California. This
consolidation resulted in the closure of leased manufacturing facilities in
Huntington, West Virginia; and Rapid City, South Dakota. Chiron Vision leases
additional manufacturing facilities in Irvine, California; Lyon, France; and
Munich, Germany.
CCD owns manufacturing facilities in Oberlin, Ohio; and Walpole,
Massachusetts. Other manufacturing sites are leased including Irvine,
California; Alameda, California; Medfield, Massachusetts; and Sudbury, England.
All CCD facilities were certified ISO 9000 in 1995.
MAJOR CUSTOMERS
During 1995, no single customer contributed ten percent or more to total
revenues. Ciba and its affiliates are related parties and collectively
contributed 11 percent and 13 percent of total revenues in 1994 and 1993,
respectively. Johnson & Johnson and its affiliates are related parties and
collectively contributed 22 percent and 32 percent of total revenues during 1994
and 1993, respectively. Sales of Betaseron-Registered Trademark- to Chiron's
marketing partner accounted for less than ten percent of total revenues in 1995
and 1993, and 23 percent in 1994.
For a discussion of revenues by geographic area, see Part II, Item 8., Note
11 of Notes to 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 for the years ended December 31,
1995, 1994 and 1993, including payments to collaborative partners, was $343.8
million, $166.2 million and $140.0 million, respectively. Under contracts where
reimbursement is based upon work performed, the related research and development
expenses were $51.8 million, $72.4 million and $61.5 million in 1995, 1994 and
1993, 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
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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 drugs, diagnostic tests and
instruments and ophthalmic devices. All are regulated under the Food, Drug, and
Cosmetic Act ("FDCA") and supporting regulations. The biological products are
additionally regulated under the Public Health Service Act ("PHSA") 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.
The FDA is proposing to amend the biologics regulation to eliminate the
establishment license application requirement for well-characterized
biotechnology products licensed under the PHSA. The proposed rule would exempt
well-characterized biotechnology products, licensed under the PHSA, from certain
biologics regulations and harmonize the requirements applicable to these
products with those applicable to similar drug products approved under the FDCA.
Since every FDA decision requires submission of an application and
substantial supporting documentation (such as a New Drug Application, Premarket
Approval Application, 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.
Licensing procedures in the European Union ("EU") were revised in 1995
leading to the estab-
lishment of the following two new registration procedures: a Centralized
Procedure for licensing of medicinal products derived from the use of high
technology/biotechnology processes, and a Decentralized Procedure whereby a
license granted in one Member State of the EU is mutually recognized by other
Member States, leading to the granting of equivalent licenses in those Member
States recognizing the original license.
The Centralized Procedure is mandatory for those medicinal products derived
from genetic engineering/monoclonal antibody technologies and optional for other
high technology-derived medicinal products and any drug with a new chemical
entity as an active substance, a new delivery system of significant innovation,
or an entirely new indication of significant therapeutic interest. This
procedure leads to the granting of a single license for the entire EU by the
newly established European Medicines Evaluation Agency based in London.
For existing national licensing procedures, a transition period to January
1, 1998 will exist. At that time, the Decentralized Procedure will replace
independent national licensing of products in the EU.
Due to insufficient experience to date, it is unclear what impact, if any,
these revised procedures will have for the registration of products in Europe.
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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,
semi-exclusively 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 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
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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 its patents and
proprietary rights and those of third parties will continue to arise in the
future (see Part I, Item 3.). 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, 1995, Chiron and its subsidiaries employed 6,894 people on a
full-time and part-time basis in eight principal locations on four continents.
Of Chiron's employees, 3,789 were involved in research, development and
manufacturing efforts and 3,105 were involved in operations, administration,
sales and marketing and finance.
ITEM 2. PROPERTIES
Chiron's operations are conducted in owned and leased facilities located
throughout the world. Chiron's principal facilities are located in Emeryville,
California, and are used for research and development, manufacturing and
administrative activities. Although the Company leases the majority of these
facilities, Chiron owns certain facilities as well as land held for future
expansion.
The Company owns manufacturing facilities located in Vacaville, California;
St. Louis, Missouri; and Amsterdam, The Netherlands. Certain of these facilities
have available capacity due to lower than expected domestic demand for the
Company's Betaseron-Registered Trademark- product. Chiron also owns a
manufacturing facility in Puerto Rico which is currently idled due to lower than
expected demand for Betaseron-Registered Trademark-. Chiron leases and owns
manufacturing facilities in Italy for the production of pediatric and adult
vaccines. In 1995, Chiron commenced construction in Italy to build additional
manufacturing facilities for the production of bacterial vaccines.
Chiron owns manufacturing facilities in Oberlin, Ohio; and Walpole,
Massachusetts, which are used for the development and manufacture of diagnostic
products. The Company also owns a sales and administrative facility in Norwood,
Massachusetts, and a sales office and warehouse in Halstead, England. Chiron
leases manufacturing facilities relating to its diagnostic products in Irvine
and Alameda, California; Medfield, Massachusetts; and Sudbury, England.
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The Company owns administrative and manufacturing facilities in Claremont,
California, and leases manufacturing facilities in Irvine, California; Lyon,
France; and Munich, Germany, which are used in the Company's ophthalmic
business.
Chiron leases additional facilities in 14 cities across the United States.
These properties are primarily sales and service offices. The Company also
leases additional facilities in Canada, Mexico, England, Switzerland, Sweden,
Spain, Italy, The Netherlands, Germany, France, Belgium, Austria, Portugal,
Poland, Taiwan, Singapore, Korea, Japan and Australia, primarily for sales and
service offices.
The Company believes its present facilities are adequate for its current
needs. The Company continually evaluates future requirements for its facilities.
ITEM 3. LEGAL PROCEEDINGS
ABBOTT LABORATORIES. On December 13, 1993, Chiron filed a patent
infringement action against 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 ("the '949 patent"), 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 were filed. After argument,
the Court granted portions of Chiron's motion but denied Abbott's motion for
summary judgment. Subsequently, the United States Patent & Trademark Office
declared an interference between the '949 patent and an application owned by
Centocor and the U.S. government. Chiron is the junior party. The Court refused
Abbott's request to stay the litigation pending resolution of the interference
and has scheduled a trial for April 7, 1996.
On April 26, 1994, Abbott filed suit against Chiron in the United States
District Court for the Northern District of Illinois, Eastern Division, alleging
that the Company has, by making, using and selling nucleic acid hybridization
assays, infringed three U.S. patents owned by third parties and licensed to
Abbott. Abbott is seeking injunctive relief and damages in an unspecified
amount. The Company believes that it has substantial defenses and is defending
this suit vigorously. Trial is currently scheduled for July 15, 1996.
ALLERGAN MEDICAL OPTICS. 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) (together,
"Chiron"). The complaint alleged that a mechanical inserter used to place the
Chiron foldable intraocular lens in the eye during cataract surgery infringes a
patent licensed exclusively to Allergan. Allergan sought an injunction against
sales of the inserter, damages in an unspecified amount, and attorneys' fees. On
November 27, 1995, Chiron Vision and Allergan reached a settlement in the
lawsuit. Chiron signed a Final Consent Judgment in exchange for a license to the
subject patent.
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 has
engaged in unfair competition and unfair business practices in asserting its
patent rights. Advanced ChemTech is asking the Court to: (1) find that the
patent at issue is invalid and unenforceable; (2) find that Advanced ChemTech
does not infringe the patents; and (3) award 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.
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
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States government. Subsequently, Bradley dismissed the United States as a
defendant. Bradley, who collaborated with Chiron scientists on research that led
to the discovery of HCV, alleges he had been wrongly excluded as an inventor of
HCV. He requests various forms of relief, including declarations that he is an
inventor of Chiron's patents related to HCV and that these patents are
unenforceable. Bradley further seeks monetary damages and a constructive trust
on all past and future profits derived from Chiron's HCV invention, which are
estimated by Bradley to be in excess of $1 billion, as well as penalties under
federal and state Racketeering and Corrupt Organization (RICO) statutes. Chiron
believes Bradley's claims to inventorship and his suit are without merit and
that substantial defenses exist. In 1990, Bradley and the CDC entered into a
settlement agreement regarding their respective claims of inventorship under
which any rights either might have were assigned to Chiron. Chiron believes that
the settlement agreement is valid and bars substantially all of the claims in
the subject litigation. Chiron and the other defendants filed a motion to
dismiss Bradley's First Amended Complaint. The Court dismissed Bradley's
complaint for failure to state a claim upon which relief can be granted, but
allowed Bradley to file an amended complaint. Chiron has filed a motion to
dismiss Bradley's Second Amended Complaint.
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 its wholly-owned subsidiary, Cetus Oncology Corporation, claiming that the
defendants infringed certain United States patents relating to plasmids for the
expression of DNA Polymerase I and to plasmids providing for nick-translation
activity. 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.
Venue of the case was changed to the Northern District of California on motion
by Chiron. Discovery is ongoing. The facts of the case, including potential
indemnification rights or obligations among the defendants, are currently under
review. However, Chiron believes that it and Cetus have significant defenses.
EVANS. On November 8, 1995, the Tribunal of Brescia, an Italian Court,
dismissed a lawsuit brought by Evans Medical Limited (a division of Medeva plc)
("Evans") against Chiron's Italian vaccine business, Biocine S.p.A., and against
Nuova Chimica Medica s.r.1., a distributor. Evans sought injunctive relief via
an emergency procedure. The suit alleged that the p69 antigen used in Biocine
S.p.A.'s recombinant acellular pertussis vaccines
(Acelluvax-Registered Trademark- and Acelluvax-Registered Trademark- DTP)
infringed Evans' Italian counterpart to its European patent No. 162,639 ("the
'639 patent"). This patent is licensed by Evans exclusively to SmithKline
Beecham Biologicals S.A. Counterpart patents are pending or have been issued in
other jurisdictions, including the United States. Earlier in the year, Evans had
brought a similar proceeding against Biocine S.p.A. and its distributor for
emergency injunctive relief in the same Court. Following a June 26, 1995
hearing, Evans abandoned that proceeding.
Biocine S.p.A. previously had opposed issuance of the '639 patent before the
European Patent Office ("EPO") and has appealed the finding reached by the EPO
in that opposition proceeding. Biocine S.p.A. filed an action against Evans in
Milan on October 23, 1995 alleging invalidity of the same patent that formed the
basis for the two Italian suits discussed above. Biocine S.p.A. later filed a
claim against Evans for non-infringement with the Milan Court. Evans' response
to the Milan actions was filed in February 1996. Also in February 1996, Biocine
S.p.A. filed an action alleging invalidity and non-infringement of Evans' Dutch
equivalent to the '639 patent in The Netherlands. Chiron believes that it does
not infringe any valid claim in the '639 patent or in its foreign counterparts.
MUREX DIAGNOSTICS, LTD. In a series of actions, the first of which was
brought on March 2, 1992, Chiron, together with Ortho and Ortho Diagnostic
Systems, Ltd. (collectively, "Ortho"), 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.
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On May 27, 1994, the High 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. Both Murex and the Chiron/Ortho parties appealed
various aspects of the High Court's judgment. Chiron's and Ortho's request for
an injunction was granted on November 30, 1994. Following an interim damages
inquiry which was held in February 1996, the Court ordered Murex to pay L6
million (approximately $9 million) to Chiron/Ortho by February 23, 1996. On
February 22, 1996, Murex, which had changed its name to Specialist Diagnostics,
Ltd., filed a petition for voluntary liquidation. There can be no assurance when
or whether Chiron and Ortho will be able to collect this damage award. A damages
inquiry is scheduled for July 1996.
In a series of rulings on November 2 and 7, 1995, the U.K. Court of Appeal
held that, with the exception of one claim, the '511 patent is valid and that
Chiron could amend the patent and proceed with the damages inquiry. The parties
have applied for leave to appeal to the House of Lords.
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 also have been filed by Chiron and Ortho in
Germany, Italy, The Netherlands and Belgium. On January 23, 1995, Chiron and
Ortho were granted an injunction in Germany. On May 8, 1995, Chiron was granted
a cross-border preliminary injunction by the Dutch Court preventing infringement
by Murex and certain of its affiliates covering The Netherlands, Belgium,
France, Spain and Luxembourg. Murex has brought an action in Australia seeking
revocation of the Australian counterpart of the '511 patent. Chiron has
counterclaimed for infringement. That matter is scheduled for trial in June of
1996.
ORGANON TEKNIKA, LTD. On May 4, 1994, Chiron instituted summary legal
proceedings against Organon Teknika, B.V., Akzo Pharma, B.V., subsidiaries of
Akzo 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 appealed the injunction. The '216 patent
is a counterpart of the British '511 patent. Infringement proceedings brought by
Chiron and Ortho were also pending against Organon in Italy and Belgium (based
on the '216 patent), and consolidated with the actions against Murex, described
above. Chiron, Ortho, and Organon settled all European HCV litigation on October
9, 1995, and Chiron and Ortho were compensated for past infringement. UBI did
not participate in the settlement, and has been ordered to pay Ortho Ltd.
damages by the U.K. Court of Appeal, along with Murex, as described above. A
damages inquiry has not yet been scheduled.
SICOR. In April 1991, Alco Chemicals, Ltd. ("Alco") and Sicor, S.p.A.
("Sicor"), former suppliers of bulk doxorubicin to Cetus Ben Venue Therapeutics
("CBVT"), 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. Plaintiffs claim that they had distribution and supply agreements
with CBVT relative to a product called doxorubicin hydrochloride. Sicor had been
prevented from manufacturing product for CBVT since September 1990. In March
1991, CBVT entered into an agreement with Erbamont which provided for, among
other things, the settlement of several legal proceedings then pending relating
to Erbamont's alleged doxorubicin proprietary rights, and the exclusive supply
of doxorubicin to CBVT by Erbamont. The Sicor complaint alleges breach of the
CBVT contract to purchase bulk doxorubicin from Sicor, as well as antitrust
violations and interference with contract and prospective advantage,
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and sought unspecified damages. Plaintiffs assert in separate counts against all
of the Cetus parties that their contracts with CBVT have been breached, that
inducement of such breaches has been tortious, that plaintiffs' prospective
economic relations have been tortiously frustrated, that the Cetus parties are
indebted to plaintiffs on past accounts said to relate to the joint financing of
earlier litigation, and that plaintiffs' distribution and supply of doxorubicin
has been foreclosed by reason of violations of the federal antitrust laws. 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. Sicor's antitrust claims have been
dismissed on motion and Sicor has dismissed its claims against Erbamont. Sicor
filed a summary judgment motion with respect to the counterclaims of the Cetus
parties. On February 2, 1996, the District Court granted that motion in an
opinion which the Company is currently studying. The Company believes it has
substantial defenses to the Sicor claims. A related arbitration before the
International Chamber of Commerce in New York brought by Sicor against Chiron,
Cetus, and Ben Venue has been stayed pending the resolution of the Cetus
parties' counterclaims in the litigation described above.
In February 1995, Sicor and Alco filed a further action in the United States
District Court for the Northern District of California against CBVT for amounts
allegedly owed by CBVT to Sicor and Alco for the supply of doxorubicin, plus
interest and attorneys' fees. This case has been assigned to the same judge as
the above-referenced District Court case. The Company believes that it has
significant defenses to these claims.
SCRIPPS CLINIC. 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 plaintiffs' 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. Appeal Nos. 89-1541, -1542, -1543, -1646 and -1647 were filed in the
United States Court of Appeals for the Federal Circuit. The Appellate Court
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 been set and it is unclear when a date will be set. Chiron
intends to vigorously assert its defenses at trial.
SUMMIT. On September 29, 1994, Summit Technology Ireland B.V., a subsidiary
of Summit Technology, Inc., a manufacturer of ophthalmic lasers, filed a patent
infringement action in the Regional Court of Dusseldorf, Germany, against two
German subsidiaries of Chiron Vision (Chiron Technolas and Chiron Adatomed), and
their respective managing directors. The suit alleged that the manufacture and
sale in Germany of the Technolas-Registered Trademark-
Keracor-Registered Trademark- '116 excimer laser infringed the German
counterpart of a European patent held by Summit. Summit sought injunctive relief
and damages which it estimated at Deutsche mark 2 million. On August 3, 1995,
the German Court granted judgment in favor of Summit, granted an injunction
against defendants' further infringement and awarded damages for past
infringement in an amount to be determined. On September 1, 1995, Summit
enforced the judgment and the injunction by posting security in the amount of
Deutsche mark 2 million. The Company's appeal of the Regional Court's decision
is pending. Chiron Technolas, Chiron Vision's sole source of ophthalmic lasers,
continues to manufacture ophthalmic excimer lasers, which are distributed by
Chiron Vision and its subsidiaries. The Company believes these activities are
outside the scope of the judgment and injunction of the German Regional Court.
The Company has also initiated a separate judicial action in Germany seeking to
invalidate Summit's patent.
AMERICAN HOME PRODUCTS. On April 27, 1995, American Home Products
Corporation ("AHP") filed suit against Chiron in the Superior Court in New
Castle County, Delaware, claiming compensatory, consequential and punitive
damages based on an alleged breach and repudiation by Chiron of a contract
pursuant to which Chiron had agreed to purchase certain assets from AHP. The
case has been settled and was ordered dismissed on December 2, 1995.
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BRILLIANT TRADING CO., WOLFSON. Following the announcement by Chiron of the
signing of a definitive agreement to acquire Viagene, Inc. ("Viagene"), two
lawsuits purporting to be class actions were filed on April 24 and May 1, 1995,
respectively, in the Court of Chancery of the State of Delaware against named
directors and officers of Viagene and against Viagene and Chiron. In one case,
Chiron is sued on a theory that it aided and abetted alleged breaches of
fiduciary duty by Viagene's directors and officers in approving the proposed
acquisition by Chiron. In the other case, Chiron is sued for alleged breaches of
fiduciary duty as a controlling stockholder of Viagene. Plaintiffs seek
declaratory and injunctive relief, an accounting and costs and disbursements.
Defendants have received an open extension of time to answer or otherwise
respond. Chiron believes these suits are without merit.
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 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. 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., C.A. No. 744522-2). Plaintiff sought injunctive and declaratory relief, and
an accounting, costs and disbursements, including attorneys' and experts' fees,
and other relief.
On October 17, 1995, the PERERA plaintiffs commenced a new action (the
"Federal Action") in the United States District Court for the Northern District
of California, against the same defendants and Ciba-Geigy, Ltd., Ciba-Geigy's
Chairman Alex Krauer, Ciba-Geigy Corporation, and Ciba Biotech Partnership, Inc.
(collectively, the "Ciba Defendants"). The Federal Action asserts both state and
federal claims, including a claim under Sections 10(b), 14(d) and 14(e) of the
Securities Exchange Act of 1934, and seeks damages and injunctive relief. On
October 23, 1995, in light of the filing of the Federal Action, the PERERA
action was dismissed by stipulation of the parties.
Plaintiffs and all of the defendants other than the Ciba Defendants have
entered into an agreement to settle the Federal Action on a class-wide basis,
subject to approval by the Court. Under the terms of that settlement agreement,
Chiron will pay plaintiffs' counsel up to $300,000 in attorneys fees and
expenses, as may be awarded by the Court, and will pay the costs of class
notice. Chiron has no other financial obligations under the settlement
agreement, which also contemplates that the HANNA and DEZUBE actions will be
dismissed as moot following approval of the settlement and dismissal of the
Federal Action. It is presently expected that the settlement will be presented
to the District Court for preliminary approval at a status conference in March
1996, and that a final approval hearing will be scheduled within two months
thereafter, following notice to the plaintiff class.
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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, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
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. 67 Chairman of the Board
Edward E. Penhoet, Ph.D. 55 President and Chief Executive Officer
Renato Fuchs, Ph.D. 53 Senior Vice President, Manufacturing and
Development Operations
William G. Green, Esq. 51 Senior Vice President, General Counsel
and Secretary
Pablo D.T. Valenzuela, Ph.D. 54 Senior Vice President, Biologicals
Research and Development; Office of the
President, Chiron Diagnostics
Lewis T. Williams, M.D., Ph.D. 47 Senior Vice President; President, Chiron
Technologies
Dennis L. Winger 48 Senior Vice President, Finance and
Administration, and Chief Financial
Officer
Robert P. Blackburn, Esq. 39 Vice President and Chief Patent Counsel
Kenneth J. Conway 47 Senior Vice President, Ciba Corning
Diagnostics; Office of the President,
Chiron Diagnostics
Keith A. Costa 58 Executive Vice President, Ciba Corning
Diagnostics; Office of the President,
Chiron Diagnostics
Rajen K. Dalal 42 Vice President, Corporate Planning and
Business Development
Dino Dina, M.D. 49 Vice President, Virology and Vaccine
Development; President, Chiron Biocine
Company
Alain Herrera, M.D. 45 Vice President; President, Chiron
Therapeutics Europe
Edward Kenney 51 Division Vice President, Chiron
Therapeutics
William J. Link, Ph.D. 49 Vice President; Chairman and Chief
Executive Officer, Chiron Vision
Mario Lorenzoni 54 Vice President; Chief Executive Officer,
Biocine S.p.A.
Bernardita Mendez, Ph.D. 43 Vice President, Regulatory and Quality
Affairs
Walter H. Moos, Ph.D. 41 Vice President, Research and Development,
Chiron Technologies
Frances L. Tuttle 48 Senior Vice President, Ciba Corning
Diagnostics; Office of the President,
Chiron Diagnostics
Mickey S. Urdea, Ph.D. 43 Vice President, Nucleic Acid Systems
Research and Development
</TABLE>
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DR. RUTTER, a co-founder of the Company, 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. He
has served as Director of Ciba-Geigy Ltd. since 1995.
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 24 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, responsible for process development of antibody products.
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. VALENZUELA, a co-founder of the Company, became Senior Vice President in
March 1989, and a member of the Office of the President, Chiron Diagnostics, in
October 1995, 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 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 UCSF, 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. CONWAY joined the Company in January 1995 as Senior Vice President of
CCD, as a result of the Company's acquisition of CCD. He has held that position
since 1991. In October 1995, he was appointed as a member of the Office of the
President for Chiron Diagnostics.
MR. COSTA joined the Company in January 1995 as Executive Vice President of
CCD, a position he has held since December 1988. In October 1995, he was
appointed as a member of the Office of the President for Chiron Diagnostics.
MR. DALAL joined Chiron in December 1991 as Vice President, Corporate
Planning. From 1983 until joining Chiron, he was employed by the international
consulting firm of McKinsey & Company, where he performed general management
consulting 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,
Chiron Biocine.
16
<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.
MR. KENNEY joined the Company in 1991 as a result of the acquisition of
Cetus Corporation as Vice President, Marketing and Sales. Prior to that date, he
held the position of Senior Director, Marketing Group, at Cetus for
approximately four years.
DR. LINK joined the Company as President of Chiron Ophthalmics, Inc. (now
"Chiron Vision") in February 1986 and held that title until 1995. In November
1990 he became Vice President of the Company, in January 1992 he became Chief
Executive Officer, Chiron Vision, and in April 1995 he became Chairman, Chiron
Vision.
MR. LORENZONI joined the Company in January 1995 as Vice President and Chief
Executive Officer of Biocine S.p.A. Prior to joining the Company, he had been
Chief Executive Officer of Biocine S.p.A. since 1994, and Managing Director of
Biocine S.p.A. 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 and Vice
President, Research and Development, Chiron Technologies, in 1994. 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, Neuro-
science and Biological Chemistry. Dr. Moos has been an Adjunct Professor of
Pharmaceutical Chemistry at the University of California, San Francisco, since
1992.
MS. TUTTLE joined the Company in January 1995 as Senior Vice President of
CCD in charge of Worldwide Marketing and Strategic Planning, a position she held
from 1994 to February 1996. In October 1995, she was appointed as a member of
the Office of the President for Chiron Diagnostics. From 1990 to 1994, she was
Executive Director of Manufacturing Operations for CCD.
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 research and development efforts at Chiron since that time. He became
Vice President, Nucleic Acid Systems Research and Development, in February 1992.
17
<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 49
of the 1995 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,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Consolidated Statement of Operations
Data:
Total revenues......................... $ 1,100,582 $ 453,979 $ 317,535 $ 246,260 $ 141,498
Income (loss) from operations.......... (482,428) 42,400 15,138 (95,544) (455,765)
Other income (expense), net............ (8,346) (10,403) 7,949 6,973 12,997
Income (loss) before extraordinary
item.................................. (512,463) 18,325 18,384 (92,595) (444,650)
Net income (loss)...................... (512,463) 18,325 18,384 (99,252) (444,650)
Income (loss) per share before
extraordinary item.................... (12.62) 0.53 0.55 (3.07) (22.54)
Net income (loss) per share............ (12.62) 0.53 0.55 (3.29) (22.54)
Weighted average shares outstanding.... 40,610 34,293 33,681 30,200 19,724
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- ------------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital........................ $ 268,408 $ 314,174 $ 256,419 $ 250,874 $ 486,826
Total assets........................... 1,490,198 1,049,742 968,597 701,115 907,162
Long-term debt, excluding current
portion............................... 413,248 338,061 332,991 110,681 247,466
Accumulated deficit.................... (1,087,699) (575,236) (593,561) (611,945) (511,783)
Stockholders' equity................... 672,412 572,631 522,289 478,681 505,617
Number of employees...................... 6,894 2,668 2,179 1,867 1,706
</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
Corporation ("Cetus") in a merger accounted for by the purchase method;
therefore, the operating results of Cetus are included from the date of the
acquisition.
On May 10, 1994, Chiron acquired Laboratoires Domilens, S.A. ("Domilens"),
in a transaction accounted for by the purchase method; therefore, the operating
results of Domilens are included from the date of the acquisition.
Effective January 1, 1995, under a series of agreements between Chiron and
Ciba, Chiron acquired CCD and Ciba's interest in Chiron Biocine Company and
Biocine S.p.A. The acquisition of those entities was accounted for by the
purchase method; therefore, the operating results for those entities are
included for the entire year. On March 31, 1995, Chiron Vision acquired the
surgical division of IOLAB from Johnson & Johnson in a transaction accounted for
by the purchase method; therefore, the operating results of IOLAB are included
from the date of the acquisition. On September 29, 1995, Chiron acquired
Viagene, Inc. in a transaction accounted for by the purchase method; therefore,
the operating results of Viagene, Inc. are included from the date of the
acquisition.
18
<PAGE>
The Company has paid no cash dividends and does not expect to pay dividends
in the foreseeable future.
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 1-12 of the 1995
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 13-47 of the 1995
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 16,
1996, 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 16, 1996, 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 16, 1996, 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 16, 1996, 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 13-47 of the 1995 Consolidated Financial
Statements, which is included as Exhibit 13 to this Form 10-K Report and the
Reports of Independent Auditors appearing on pages 30 and 31 of this Form 10-K,
are incorporated herein by reference.
19
<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 hereto.
b) REPORTS ON FORM 8-K
On November 13, 1995, Chiron filed Amendment No. 1 to its current report on
Form 8-K, dated September 29, 1995, to include under Item 7 the audited
financial statements of Viagene, Inc. and proforma combined condensed financial
information.
c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
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, incorporated by reference to Exhibit 3.03 of
the Registrant's Form 10-K report for fiscal year 1994.
4.01 Indenture, dated as of May 21, 1987, between Cetus Corporation and Bankers Trust
Company, Trustee, incorporated by reference to Exhibit 4.01 of the Registrant's Form
10-Q report for the period ended September 30, 1994.
4.02 First Supplemental Indenture, dated as of December 12, 1991, by and among
Registrant, Cetus Corporation, and Bankers Trust Company, incorporated by reference
to Exhibit 4.02 of the Registrant's Form 10-K report for fiscal year 1992.
4.03 Indenture, dated as of November 15, 1993, between Registrant and The First National
Bank of Boston, as Trustee, incorporated by reference to Exhibit 4.03 of the
Registrant's Form 10-K report for fiscal year 1993.
4.04 Rights Agreement, dated as of August 25, 1994, between the Company and Continental
Stock Transfer & Trust Company, which includes the Certificate of Designations for
the Series A Junior Participating Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as
Exhibit C, incorporated by reference to Exhibit 4.04 of the Registrant's current
report on Form 8-K dated August 25, 1994.
4.05 Amendment No. 1 to Rights Agreement dated as of November 20, 1994, between Chiron
Corporation and Continental Stock Transfer & Trust Company, incorporated by
reference to Exhibit 4.05 of the Registrant's current report on Form 8-K, dated
November 20, 1994.
4.06 $1,000,000 County of Lorain, Ohio Variable Rate Industrial Revenue Bonds dated as of
July 1, 1984, due July 1, 2014, incorporated by reference to Exhibit 4.06 of the
Registrant's Form 10-Q report for the period ended April 2, 1995. The Registrant
agrees to furnish to the Commission upon request a copy of such agreement which it
has elected not to file under the provisions of Regulation 601(b)(4)(iii).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
4.07 $1,000,000 Walpole Industrial Development Authority 6.75% Industrial Revenue Bonds
dated as of July 1, 1979, due July 1, 2004, incorporated by reference to Exhibit
4.07 of the Registrant's Form 10-Q report for the period ended April 2, 1995. The
Registrant agrees to furnish to the Commission upon request a copy of such agreement
which it has elected not to file under the provisions of Regulation 601(b)(4)(iii).
10.01 Lease between Registrant and BGR Associates, a California limited partnership, dated
May 26, 1989, incorporated by reference to Exhibit 10.01 of the Registrant's Form
10-Q report for the period ended September 30, 1994.
10.02 First Amendment to Lease between Registrant and BGR Associates, a California limited
partnership.
10.03 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.
10.04 First Amendment to Lease between Registrant and BGR Associates II, a California
limited partnership, dated as of March 15, 1995.
10.05 Agreement and Plan of Merger dated as of April 23, 1995 between Viagene, Inc., a
Delaware corporation, and Chiron Corporation, incorporated by reference to Exhibit
10.67 of the Registrant's current report on Form 8-K dated April 24, 1995.
10.06 Stockholders' Agreement dated as of April 23, 1995 among certain stockholders of
Viagene, Inc., a Delaware corporation, and Chiron Corporation, incorporated by
reference to Exhibit 10.68 of the Registrant's current report on Form 8-K dated
April 24, 1995.
10.07 Stock and Asset Purchase Agreement dated as of March 6, 1995, by and among Johnson &
Johnson, a New Jersey corporation, Site Microsurgical Systems, Inc., a Pennsylvania
corporation, and Chiron Corporation and Amendment No. 1 to Stock and Asset Purchase
Agreement, entered into March 31, 1995 by and among Johnson & Johnson, Site
Microsurgical Systems, Inc. and Chiron Corporation, incorporated by reference to
Exhibit 10.05 of the Registrant's Form 10-Q report for the period ended April 2,
1995.
10.08 Revolving Credit Facility dated as of March 24, 1995, between Chiron Corporation and
Swiss Bank Corporation, San Francisco Branch, incorporated by reference to Exhibit
10.06 of the Registrant's Form 10-Q report for the period ended April 2, 1995.
10.09 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>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
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, incorporated by reference to Annex 1 of
the Registrant's Proxy Statement dated April 18, 1995.*
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
current 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 Ciba Corning Diagnostics Corp. Policies, Guidelines and Procedures regarding
Severance Pay.*
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, incorporated by reference to Exhibit 10.25 of the Registrant's Form 10-K
report for fiscal year 1994.
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>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.*
10.36 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.*
10.37 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.
10.38 Amendment to Lease, made as of March 20, 1990, amending Lease dated July 1, 1983,
between Harold B. Chapman, Jr. and Cetus Corporation, incorporated by reference to
Exhibit 10.37 of the Registrant's Form 10-Q report for the period ended April 2,
1995.
10.39 Second Amendment to Lease made as of January 1, 1995 between Harold B. Chapman, Jr.
and the Registrant.
10.40 Lease commencing March 1, 1987, between EuroCetus B.V. and the Municipal Land
Company of the City of Amsterdam (Translation).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
10.41 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.
10.42 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.
10.43 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.
10.44 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.
10.45 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.
10.46 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.
10.47 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.
10.48 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.
10.49 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.*
10.50 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.*
10.51 Lease between Sclavo S.p.A. and Biocine Sclavo S.p.A., dated January 7, 1992,
incorporated by reference to Exhibit 10.49 of the Registrant's Form 10-Q report for
the period ended April 2, 1995.
10.52 Agreement made as of November 11, 1993 by and between Kodak Clinical Diagnostics
Limited, a company registered in England, and Ciba Corning Diagnostics Corp., a
Delaware corporation, and Letter dated October 7, 1994 from Kodak Clinical
Diagnostics Limited to Ciba Corning Diagnostics Corp., incorporated by reference to
Exhibit 10.50 of Amendment No. 1 to the Registrant's Form 10-Q report for the period
ended April 2, 1995. [Certain information has been omitted from the Agreement
pursuant to a request by Registrant for confidential treatment pursuant to Rule
24b-2.]
10.53 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.*
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
10.54 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.*
10.55 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.*
10.56 Agreement made as of December 6, 1984, by and between Corning Glass Works, a New
York corporation, and Bioanalysis Limited, a company incorporated in England and
Wales, and Letter dated July 26, 1985 from Bioanalysis Limited to Corning Glass
Works, incorporated by reference to Exhibit 10.54 of the Registrant's Form 10-Q
report for the period ended April 2, 1995. [Certain information has been omitted
from the Agreement pursuant to a request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.57 Description of Executive Officer Variable Compensation Program.
10.58 Chiron Corporation 1995 Executive Officer Variable Cash Compensation Plan,
incorporated by reference to Annex 2 of the Registrant's Proxy Statement dated April
18, 1995.*
10.59 Regulatory Filing, Development and Supply Agreement between the Registrant, Cetus
Oncology Corporation, a wholly-owned subsidiary of the Registrant, and Schering AG,
a German company, dated as of May 10, 1993 (with certain confidential information
deleted), incorporated by reference to Exhibit 10.50 of the Registrant's current
report on Form 8-K dated February 9, 1994.
10.60 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.
10.61 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.
10.62 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.
10.63 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.*
10.64 Letter dated January 4, 1995 to C. William Zadel, incorporated by reference to
Exhibit 10.65 of the Registrant's Form 10-K report for fiscal year 1994.*
10.65 Letter dated June 28, 1995 to C. William Zadel.
10.66 Letter to Dino Dina dated April 24, 1984, incorporated by reference to Exhibit 10.66
of the Registrant's Form 10-K report for fiscal year 1994.*
10.67 Research Agreement, dated as of July 15, 1985, between Ciba-Geigy Limited, a Swiss
corporation, and Ciba Corning Diagnostics Corp., a Delaware corporation,
incorporated by reference to Exhibit 10.64 of the Registrant's Form 10-Q report for
the period ended April 2, 1995.
10.68 Licensing Agreement, effective December 18, 1986, by and between Miles Laboratories,
Inc., a Delaware corporation, and Ciba Corning Diagnostics Corp., a Delaware
corporation, and Letter dated December 18, 1992 from Ciba Corning Diagnostics Corp.
to Miles Laboratories, Inc., incorporated by reference to Exhibit 10.65 of Amendment
No. 1 to the Registrant's Form 10-Q report for the period ended April 2, 1995.
[Certain information has been omitted from the Agreement pursuant to a request by
Registrant for confidential treatment pursuant to Rule 24b-2.]
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
10.69 Magnetocluster Binding Assay Technology Agreement, dated as of January 21, 1983, by
and between Bioclinical Group, Inc., a Delaware corporation, and Corning Glass
Works, a New York corporation, incorporated by reference to Exhibit 10.66 of
Amendment No. 1 to the Registrant's Form 10-Q report for the period ended April 2,
1995. [Certain information has been omitted from the Agreement pursuant to a request
by Registrant for confidential treatment pursuant to Rule 24b-2.]
10.70 Turn-back License Agreement, dated as of May 30, 1986, by and between Ciba Corning
Diagnostics Corp., a Delaware corporation, and Advanced Magnetics, Inc., a Delaware
corporation, incorporated by reference to Exhibit 10.67 of the Registrant's Form
10-Q report for the period ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by Registrant for confidential
treatment pursuant to Rule 24b-2.]
10.71 Settlement Agreement, dated August 30, 1989, between Ciba Corning Diagnostics Corp.
and Advanced Magnetics, Inc., incorporated by reference to Exhibit 10.68 of the
Registrant's Form 10-Q report for the period ended April 2, 1995. [Certain
information has been omitted from the Agreement pursuant to a request by Registrant
for confidential treatment pursuant to Rule 24b-2.]
10.72 Lease made and entered into December 17, 1984 between BGR Associates, a California
limited partnership, and Cetus Corporation and Amendment to Lease dated December 17,
1984 entered into effective February 1, 1986, incorporated by reference to Exhibit
10.69 of the Registrant's Form 10-Q report for the period ended April 2, 1995.
10.73 Second Amendment to Lease dated as of March 15, 1995 between BGR Associates, a
California limited partnership, and Registrant.
10.74 Agreement, effective as of December 21, 1988, by and between Hoffmann-La Roche Inc.,
a New Jersey corporation, and Cetus Corporation, incorporated by reference to
Exhibit 10.70 of the Registrant's Form 10-Q report for the period ended April 2,
1995. [Certain information has been omitted from the Agreement pursuant to a request
by Registrant for confidential treatment pursuant to Rule 24b-2.]
10.75 Agreement, effective as of December 21, 1988, by and among F. Hoffmann-La Roche
Ltd., a Swiss corporation, Cetus Corporation, and EuroCetus International, B.V., a
Netherlands Antilles corporation, incorporated by reference to Exhibit 10.71 of the
Registrant's Form 10-Q report for the period ended April 2, 1995. [Certain
information has been omitted from the Agreement pursuant to a request by Registrant
for confidential treatment pursuant to Rule 24b-2.]
10.76 Agreement, by and between Cetus Oncology Corporation, EuroCetus International, N.V.,
and F. Hoffmann-La Roche Ltd., incorporated by reference to Exhibit 10.72 of the
Registrant's Form 10-Q report for the period ended April 2, 1995. [Certain
information has been omitted from the Agreement pursuant to a request by Registrant
for confidential treatment pursuant to Rule 24b-2.]
10.77 Agreement commencing January 1, 1991, between EuroCetus B.V. and the Municipal
Development Corporation (Translation), incorporated by reference to Exhibit 10.41 of
the Registrant's Form 10-K report for fiscal year 1994.
10.78 Settlement Agreement on Purified IL-2, made as of April 14, 1995, by and between
Cetus Oncology Corporation, dba Chiron Therapeutics, a Delaware corporation, and
Takeda Chemical Industries, Ltd., a Japanese corporation, incorporated by reference
to Exhibit 10.74 of the Registrant's Form 10-Q report for the period ended July 2,
1995. [Certain information has been omitted from the Agreement pursuant to a request
by Registrant for confidential treatment pursuant to Rule 24b-2.]
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------
<S> <C>
10.79 License Agreement made and entered into December 1, 1987, by and between Sloan
Kettering Institute for Cancer Research, a not-for-profit New York corporation, and
Cetus Corporation, incorporated by reference to Exhibit 10.75 of the Registrant's
Form 10-Q report for the period ended July 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by Registrant for confidential
treatment pursuant to Rule 24b-2.]
10.80 Chiron Funding L.L.C. Limited Liability Company Agreement, entered into and
effective as of December 28, 1995, among the Registrant, Chiron Biocine Company and
Biocine S.p.A. and Ciba-Geigy Corporation. [Certain information has been omitted
from the Agreement pursuant to a request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.81 Agreement between Ciba-Geigy Limited and the Registrant made November 15, 1995.
[Certain information has been omitted from the Agreement pursuant to a request by
Registrant for confidential treatment pursuant to Rule 24b-2.]
10.82 Reimbursement Agreement dated as of March 24, 1995, between Ciba-Geigy Limited, a
Swiss corporation, and the Registrant, incorporated by reference to Exhibit 10.76 of
the Registrant's Form 10-Q report for the period ended July 2, 1995.
10.83 Promissory Note, as amended and restated, dated January 1, 1995 by Ciba Corning
Diagnostics Corp.
10.84 Commercial lease between Domilyon Corporation and Domilens Laboratories and
Amendment No. 1 to Commercial Lease dated May 9, 1994.
10.85 Agreement between the Registrant and Cephalon, Inc. dated as of January 7, 1994, and
Letter Agreements between the Registrant and Cephalon dated January 13, 1995 and May
23, 1995. [Certain information has been omitted from the Agreements pursuant to a
request by Registrant for confidential treatment pursuant to Rule 24b-2.]
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. The consent set forth on
page 32 is incorporated herein by reference.
23.2 Consent of Ernst & Young LLP, Independent Auditors. The consent set forth on page 33
is incorporated herein by reference.
24 Power of Attorney. The Power of Attorney set forth on pages 28 and 29 is
incorporated herein by reference.
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Management contract, compensatory plan or arrangement.
27
<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 28, 1996
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.
28
<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 28, 1996
Edward E. Penhoet, Ph.D. Executive Officer
Senior Vice President,
Finance and
/s/ DENNIS L. WINGER Administration, Chief
- ----------------------------------- Financial Officer, and March 28, 1996
Dennis L. Winger Principal Accounting
Officer
/s/ WILLIAM J. RUTTER
- ----------------------------------- Chairman of the Board of March 28, 1996
William J. Rutter, Ph.D. Directors
/s/ LEWIS W. COLEMAN
- ----------------------------------- Director March 28, 1996
Lewis W. Coleman
/s/ PIERRE E. DOUAZE
- ----------------------------------- Director March 28, 1996
Pierre E. Douaze
/s/ DONALD GLASER
- ----------------------------------- Director March 28, 1996
Donald Glaser, Ph.D.
/s/ ALEX KRAUER
- ----------------------------------- Director March 28, 1996
Alex Krauer, Ph.D.
/s/ FRANCOIS L'EPLATTENIER
- ----------------------------------- Director March 28, 1996
Francois L'Eplattenier, Ph.D.
/s/ HENRI SCHRAMEK
- ----------------------------------- Director March 28, 1996
Henri Schramek, Ph.D.
/s/ JACK SCHULER
- ----------------------------------- Director March 28, 1996
Jack Schuler
/s/ PIETER J. STRIJKERT
- ----------------------------------- Director March 28, 1996
Pieter J. Strijkert, Ph.D.
</TABLE>
29
<PAGE>
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Chiron Corporation:
We have audited the accompanying consolidated balance sheets of Chiron
Corporation and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. In connection with our audits 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chiron
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years 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 20, 1996
30
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Chiron Corporation
We have audited the consolidated statements of operations, stockholders'
equity and cash flows of Chiron Corporation for the year ended December 31,
1993, included in the 1995 Consolidated Financial Statements of Chiron
Corporation included as Exhibit 13. Our audit also included the financial
statement schedule of Chiron Corporation for the year ended December 31, 1993,
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 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 consolidated results of
operations, changes in stockholders' equity and cash flows of Chiron Corporation
for the year ended December 31, 1993, 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
31
<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, 33-23899, 33-58305, 33-44477,
33-65024, 33-65177, 33-45822, 33-63297 and 33-65175 on Form S-8 and File Number
33-43574 on Form S-3) pertaining to the Chiron Corporation 1982 Stock Option
Plan, the 1988 Employee Stock Purchase Plan, the 1991 Stock Option Plan, the
IntraOptics, Inc. 1986 Incentive Stock Option Plan, as amended, the 1989 Stock
Option Plan of Viagene, Inc., the Viagene Employee Stock Purchase Plan and the
shares issuable to certain warrant holders and in the related prospectuses of
our report dated February 20, 1996, relating to the consolidated balance sheets
of Chiron Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended and the related schedule, which report appears in
the December 31, 1995 annual report on Form 10-K of Chiron Corporation.
KPMG Peat Marwick LLP
San Francisco, California
March 26, 1996
32
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
of Chiron Corporation (Forms S-8, Nos. 33-20181, 33-35182, 2-90595, 33-23899,
33-44477, 33-45822, 33-65024, 33-58305, 33-63297, 33-65175 and 33-65177, Form
S-3 No. 33-43574 and Form S-4 No. 33-60503) pertaining to the 1982 Stock Option
Plan, the 1988 Employee Stock Purchase Plan, and the 1991 Stock Option Plan of
Chiron Corporation, the IntraOptics, Inc. 1986 Incentive Stock Option Plan,
certain warrants (the "Cetus Warrants"), the 1989 Stock Option Plan, the 1993
Incentive Stock Option Plan, and the Employee Stock Purchase Plan of Viagene,
Inc. and certain shares related to the acquisition of Viagene, Inc. and in the
related prospectuses of our report dated February 25, 1994, with respect to the
consolidated statements of operations, stockholders' equity and cash flows and
schedule of Chiron Corporation for the year ended December 31, 1993 included and
incorporated herein by reference in this Annual Report (Form 10-K) for the year
ended December 31, 1995.
ERNST & YOUNG LLP
San Francisco, California
March 26, 1996
33
<PAGE>
CHIRON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGES OF 1995
CONSOLIDATED
FINANCIAL
STATEMENTS
INCORPORATED FORM 10-K
BY REFERENCE PAGE
--------------- ---------------
<S> <C> <C>
Financial Statements and Notes............................................... 1-47 --
Report of KPMG Peat Marwick LLP.............................................. -- 30
Report of Ernst & Young LLP.................................................. -- 31
Schedule II -- Valuation and Qualifying Accounts............................. -- 35
</TABLE>
34
<PAGE>
CHIRON CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS RECLASSIFICATIONS OF YEAR
- ---------------------------------- ----------- ----------- ------------ ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1995:
Accounts receivable............. $ 7,210 $ 8,815 $ 6,680(1) $ (4,181) $ -- $ 18,524
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
</TABLE>
- ------------------------
(1) Represents accounts receivable allowances as of the acquisition date related
to acquired businesses.
(2) Represents amounts reclassified to other current liabilities.
35
<PAGE>
Exhibit 10.02
FIRST AMENDMENT TO LEASE
This Agreement amends and modifies that certain Triple Net Lease (the
"Lease") between BGR ASSOCIATES, a California Limited Partnership as lessor
and CHIRON CORPORATION, a California Corporation as lessee dated May 26, 1989
with respect to 4560 Horton Street, Emeryville, California.
1. AMENDMENT TO LEASE:
This document amends and modifies the Lease. Except as expressly
modified by the provisions of this amendment, the Lease shall remain in full
force and effect.
2. MODIFICATION OF PARAGRAPH 1.2:
Paragraph 1.2 of the Lease entitled "LEASE TERM" is hereby modified by
changing from "ten (10) years" in the third line of said paragraph to "twelve
(12) years."
3. AMENDMENT TO PARAGRAPH 3.2:
"EXTENSION OF INITIAL TERM": The reference in the third line of paragraph
3.2 of the Lease to the "Initial Ten (10) year term" is hereby modified and
amended to read "the Initial Twelve (12) year term" and the reference in the
last line of said paragraph to "eleven (11) years" is hereby modified to read
"thirteen (13) years".
4. MODIFICATION TO PARAGRAPH 3.3:
"OPTION TO TERMINATE": Paragraph 3.3 is deleted.
5. MODIFICATION TO PARAGRAPH 4.2:
"ANNUAL RENT ADJUSTMENT": The first sentence of paragraph 4.2 is hereby
modified to read as follows:
"During the first ten (10) years of the Lease Term and
during any extension of the Lease Term pursuant to
paragraph 19.0 of this Lease, the Base Monthly Rent
specified in paragraph 1.3 shall be subject to annual
increases determined by reference to the Consumer Price
Index for All Urban Consumers, San Francisco-Oakland-San Jose,
California. All Items (1992-84-100), published by the United
States Bureau of Labor Statistics (the "CPI")."
<PAGE>
The following language shall be inserted after the first sentence of
paragraph 4.2 of the Lease:
"During the eleventh and twelfth year of the Lease Term,
the Base Monthly Rent shall be identical to the Base
Monthly Rent due and payable under the terms of the
Lease for the last month of the tenth year of the
Lease Term."
6. CONFLICT RESOLUTION:
In the event of any conflict between the provisions of this amendment
and the provisions of the Lease, the provisions of this amendment shall
prevail.
This agreement entered into at Emeryville, California as of October 1, 1993.
LANDLORD TENANT
BGR ASSOCIATES, A CALIFORNIA CHIRON CORPORATION, A
LIMITED PARTNERSHIP CALIFORNIA CORPORATION
By: ________________________ By: _____________________
Address for Notices: Address for Notices:
1120 Nye Street 4560 Horton Street
San Rafael, CA 94901 Emeryville, CA 94608
-2-
<PAGE>
Exhibit 10.04
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is entered into
effective as of March 15, 1995, by and between BGR ASSOCIATES II, A
CALIFORNIA LIMITED PARTNERSHIP ("Lessor"), and CHIRON CORPORATION, a Delaware
corporation ("Lessee"), with reference to the following facts:
A. Lessor and Lessee are parties to that certain Triple Net Lease dated
May 26, 1989, entered into by Lessor and Lessee's predecessor, Chiron
Corporation, a California corporation (the "Lease"). The property covered by
the Lease is located in Emeryville, California, and is more particularly
described in the Lease. The Term of the Lease expires August 14, 1999; and
Lessee has the right to extend the Term of the Lease for two (2) terms of
five (5) years each.
B. Lessor, Lessee and certain other parties related to Lessor have
entered into that certain Option Agreement of even date herewith (the "Option
Agreement"), pursuant to which Lessor has been granted to Lessee the option,
subject to the terms and conditions of the Option Agreement, to purchase the
property covered by the Lease as well as other property in the vicinity
thereof. As provided for in Section 5.b of the Option Agreement, Lessee has
agreed to extend the Term of the Lease through August 14, 2000, as part of
the consideration to Lessor for granting such option to Lessee.
C. Lessor and Lessee are entering into this First Amendment pursuant to
Section 5.d of the Option Agreement to further evidence the extension of the
Term of the Lease as provided for in the Option Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lessor and Lessee hereby agree as follows (capitalized terms
used herein but not herein defined shall have the meaning ascribed to them in
the Lease):
1. AMENDMENT OF PARAGRAPH 1.2. Lessor and Lessee hereby agree that, as
provided in the Option Agreement, the Term of the Lease is extended through
August 14, 2000; and in furtherance of the foregoing, Lessor and Lessee
hereby amend Paragraph 1.2 of the Lease by deleting therefrom the words "Ten
(10) years" at the beginning of said paragraph and substituting therefor the
words "Eleven (11) years."
<PAGE>
2. TERMS OF LEASE. The terms of the Lease for the period from August
15, 1999, through August 14, 2000, shall be the same as the terms of the
Lease prior to August 15, 1999, without any adjustment to the base monthly
rent for the period from April 15, 1999, through August 14, 2000 (i.e., the
base monthly rent in effect as of August 15, 1999, shall remain in effect
through August 14, 2000). In addition, the terms of Paragraph 18 of the Lease
providing for two (2) extension options of five (5) years each shall remain
in effect, with the first extension term, if exercised, commencing on August
15, 2000.
3. STATUS OF LEASE. Except as amended hereby, the Lease remains
unamended; and as amended hereby, the Lease and all the terms and conditions
thereof remain in full force and effect.
4. COUNTERPARTS. This First Amendment may be executed in multiple
counterparts, each of which shall constitute an original hereof, and all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Lessor and Lessee have executed this First Amendment
as of the date first set forth above.
LESSEE: LESSOR:
CHIRON CORPORATION, BGR ASSOCIATES II, A CALIFORNIA
a Delaware corporation LIMITED PARTNERSHIP
By: __________________________________ By: ______________________________
Richard K. Robbins
Its: __________________________________ Managing General Partner
2
<PAGE>
Exhibit 10.24
CIBA-CORNING -Ciba Corning Diagnostics Corp.
Human Resources
-POLICIES, GUIDELINES
AND PROCEDURES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEVERANCE PAY Effective 08/01/89
Revised 04/01/92
POLICY
The Company recognizes that in some involuntary terminations an employee should
receive severance pay to help bridge the period of unemployment, if any.
Severance pay will only be paid for involuntary terminations that are not
because of gross negligence and/or misconduct (see Human Resource Policy,
G-10, Disciplinary Actions).
GUIDELINES
Severance Pay offered to regular full-time employees will be in accordance with
the following schedule subject to the restrictions noted below:
Salary Years of Service
- ------ ----------------
2-4 >4-8 >8-12 >12-16 >16-20 >20-24
< $30k 4 8 12 16 20 24
$30-$39.9 6 10 14 18 20 24
$40-$49.9 8 12 16 18 20 24
$50-$59.9 10 14 18 20 20 24
$60-$69.9 12 16 20 22 24 24
$70-$79.9 16 20 22 24 24 24
$80-$89.9 20 24 24 24 24 24
- - Under 2 years of service or over 24 years of service, or salary over $90k
will be handled on a case-by-case basis.
- - Outplacement assistance is considered an exception and requires a general
release.
Severance Pay 1 of 4 H-30.1
<PAGE>
Bonus amounts in excess of 10% above base salary will be counted as base
salary in determining weeks of severance benefit (average of last 8
quarters of bonus).
Everyone will receive a minimum of one-half the calculated benefit no matter how
soon a job is found. Severance payments will cease when a new job is found
(after minimum payment period). Severance payments above the minimum amount
will be given on week-by-week basis based upon a concerted job search.
PROCEDURES
1. The Supervisor should consider all aspects of the situation before deciding
to ask an employee to leave the Company immediately upon notification. All
separations must be handled to protect both the interests of the employee
and the Company. Because the reasons for separation vary considerably,
each case should be carefully reviewed and planned before taking action.
The appropriate Human Resource Manager must be included in the review and
planning stage and concur with the actions to be taken.
2. Severance Pay will not be granted for voluntary separations.
3. Severance Pay will not be granted for involuntary terminations that are
because of gross negligence and/or misconduct.
4. Severance Pay is calculated based on the employee's last day worked.
5. Severance Pay will end should the employee be rehired by Ciba Corning or
hired by Ciba-Geigy and its affiliates.
6. Severance Pay is conditional based upon the fact that the employee's
conduct during the severance period is not detrimental to the Company.
7. Severance Pay will be mailed on each regular pay day through the period.
It is not issued as a lump sum payment.
8. Benefit continuation during the severance period will be handled as
follows:
MEDICAL - Continues with standard payroll deductions until the last day of
the month of the last day paid. The Group Insurance Department will send
an eligibility notice for continuation of coverage (COBRA) at the end of
the severance period. The length of continuation is based from the last
Severance Pay 2 of 4 H-30.1
<PAGE>
day worked. The employee also has the right to convert their policy to a
individual policy with the Insurance Company within 31 days.
DENTAL - Continues with standard payroll deductions until the last day of
the month of the last day paid. The Group Insurance Department will send
an eligibility notice for continuation of coverage (COBRA) at the end of
the severance period. The length of continuation is based form the last
day worked. There is no conversions rights for dental coverage.
FLEXIBLE SPENDING ACCOUNTS (FSA) - Contributions to the FSA's will stop
for the severance period. The employee will have until March 31 of the
following year to claim expenses incurred up until the last day worked
(Federal Law). Left over money will be forfeited.
LIFE INSURANCE - Company provided life insurance continues until the
last day of the month of the last day paid as doses the employee paid
insurance if standard payroll deductions continue. The employee has the
right to convert their policy to an individual policy with the Insurance
Company within 31 days.
DISABILITY INSURANCE PLANS - Disability protection ends on the last day
worked.
INVESTMENT PLAN - Employee and company contributions stop during the
severance period. To receive a disbursement, the employee must complete
an Investment Plan Termination Notice.
If the employees last day paid is close to the end of a quarter, a
completed termination notice must be submitted immediately to ensure
receipt of the disbursement within 90 days. If the form is not received
until sometime in the following quarter, the employee will not receive
their disbursement until 90 days from the end of that quarter.
VACATION AND HOLIDAY PAY - Earned and unused vacation and holiday pay
will be added to the last day worked and paid prior to the Severance pay
in order to extend the severance period.
OTHER BENEFITS - All other benefits end on the last day worked.
Severance Pay 3 of 4 H-30.1
<PAGE>
9. All employees receiving severance will receive a "Memo of Understanding"
which will document the pertinent provisions of their severance package.
This document will only be issued through the Human Resources Department.
10. The Vice President, Human Resources reserves the sole power to define
severance benefits in unclear circumstances. Any variations from this
policy must have the prior approval of the Vice President, Human Resources.
See attached Severance Policy Exception Approval Form.
11. When processing a termination, the end date of the full severance period
should be entered as the last date paid. If it is determined that a
concerted job effort is not being made or if new employment is found prior
to the end of the full severance period, it is the responsibility of the
Human Resource Manager to process a change for an earlier last date paid.
Severance Pay 4 of 4 H-30.1
<PAGE>
PRIVATE DISTRIBUTION ONLY
ADDENDUM TO SEVERANCE PAY POLICY - REVISED 04/92
The Severance Pay Policy Benefits are determined on a case by case basis
for employees with salaries and service that exceed the Policy matrix. This
addendum is intended to apply to corporate officers only.
1. The Number of Severance Weeks for officer personnel will be 104 weeks.
One half of this benefit (52 weeks) will be the minimum payout period.
Severance payments will continue on a week by week basis for up to another 52
weeks or until another job is found.
2. Executive level outplacement assistance will be part of this severance
policy.
3. The pay for the severance period will consist of base pay plus target
levels for all bonus and incentive programs.
All other aspects of the published policy will apply.
<PAGE>
Exhibit 10.39
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is made as of the
1st day of January, 1995, between HAROLD B. CHAPMAN, JR., an individual
("Chapman"), and CHIRON CORPORATION, a Delaware corporation ("Chiron").
THIS SECOND AMENDMENT IS ENTERED on the basis of the following facts,
intentions and understandings of the parties:
A. Chapman, as the lessor, and Cetus Corporation ("Cetus"), as the
lessee, entered a Lease ("Original Lease") dated as of July 1, 1983. Chiron
is the successor to Cetus.
B. The Original Lease relates to premises ("Premises") commonly known
as Building M and Building G located at 1400 and 1450 53rd Street in
Emeryville, California. The Premises are more particularly described in the
Original Lease.
C. Chapman and Cetus entered an Amendment to Lease ("First Amendment")
dated as of March 20, 1990. The Original Lease as amended by the First
Amendment is hereinafter referred to as the "Lease." Terms which are
capitalized in this Second Amendment and not defined herein shall have the
meanings set forth in the Lease.
D. Chapman and Chiron now desire to amend the Lease as provided in this
Second Amendment.
E. Also as of the date of this Second Amendment, Chapman and Chiron are
entering an Option Agreement pursuant to which Chapman is granting to Chiron
an option to purchase the Premises. The Option Agreement is not to alter the
Lease (as amended by this Second Amendment) in any way.
F. The Term of the Lease is seven (7) years, commencing on July 1,
1983. The Lease provides that Chiron has the option to extend the Lease for
nine (9) additional terms of two (2) years each. Chiron has already exercised
three (3) of the two (2) year extensions, with the Term of the Lease, as
extended prior to this Second Amendment, to expire on July 1, 1996.
G. Chiron desires by this Second Amendment to extend the Term of the
Lease by two (2) additional terms of two (2) years, such that (i) the Term of
the Lease after the extensions pursuant to this Second Amendment shall expire
on June 30, 2000, and (ii) Chiron will have the right, in accordance with the
terms of the Lease (as amended by this Second Amendment), to extend the
1.
<PAGE>
Term of the Lease after June 30, 2000 by four (4) additional terms of two (2)
years each.
NOW THEREFORE, IN CONSIDERATION of the mutual covenants and promises the
parties, the parties agree as follows:
1. EXERCISE OF OPTIONS. By this Second Amendment, Chiron hereby
exercises two (2) options to extend the Term of the Lease for two (2) years
each. The extensions pursuant to this exercise shall commence on July 1,
1996, and extend through June 30, 2000.
2. REVISED SECTION 10.1. The first sentence of Section 10.1 shall
state in its entirety as follows: "Cetus at its own expense shall carry
throughout the term hereof property insurance on the Premises to replace the
Building in compliance with current building codes."
3. NO MODIFICATION OF LEASE. No terms of the Option Agreement shall
alter or modify in any way the terms of the Lease (as amended). For example,
the failure of Chiron to exercise the option, granted in the Option
Agreement, to purchase the Premises shall not affect Chiron's rights under the
Lease (as amended).
4. SUCCESSORS AND ASSIGNS. This Second Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors in interest and assigns.
5. REMAINDER OF LEASE UNAFFECTED. Except as expressly amended by this
Second Amendment, the Lease shall remain in full force and effect and
unamended.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment, on the date(s) set forth below, as of the day and year first above
written.
"Chapman"
/s/ Harold B. Chapman, Jr.
--------------------------
Harold B. Chapman, Jr., an
individual
2.
<PAGE>
"Chiron"
Chiron Corporation, a
Delaware corporation
By /s/
--------------------
Its Vice President
-------------------
Date June 7, 1995
------------------
3.
<PAGE>
Exhibit 10.40
Dr. Robert A. Fildes Undated
President and Chief Executive Officer
Cetus Corporation
1400 Fifty Third Street
Emeryville, CA 94608
U.S.A.
Re: Offer of premises in long lease
Amatel III
- -----------------------------------
Dear Mr. Fildes,
With reference to the discussions with you, I hereby advise you that after
acceptance on your part of the following conditions the City government will
propose to give in long lease to you the premises at the Pietersbergweg as
reflected on the attached drawing 74 '87 with dotted and diagonal line shading
at initial annual rent-charge (canon) of Dfl. 162.000, - i.e. Dfl. 40, --per
m TO THE POWER OF 2; the commencement date of the long lease will be March 1,
1987.
The surface of the premises amounts to approximately 4050 m TO THE POWER OF 2.
On the premises a commercial building must be erected to be used for a
biotechnological business whereby office space will take no more than 70% of
the aggregate floor surface while no construction is permitted on the premises
indicated with crossed line shading.
At the same time premises with a surface of approximately 4050 TO THE POWER
OF 2 shall be reserved for a period up to two years after completion of the
building or ultimately until March 1, 1991, as indicated on the attached drawing
74 '87 with crossed line shading.
No reservation fee will be due by you during this period.
The annual rent-charge will be determined on and is due from the moment that you
will put the premises into use. The long lease will also commence on that date.
The destination and the use of the reserved premises is equal to the above
premises.
CONDITIONS OF LONG LEASE
The issue in long lease shall occur under the "General Conditions for continuing
long lease" dated 1966 EXCEPT FOR APPLICATION OF ARTICLE 3, PAR. 14 OF THE
GENERAL CONDITIONS. For your information I enclose an information folder. On the
basis of the General Conditions the premises will be issued in long lease for
an indefinite period of time at a fixed annual rent-charge; each time after five
years the annual
<PAGE>
- 2 -
rent-charge will be adjusted to the changed value of the money. Each time after
50 years the annual rent-charge will be adjusted again in mutual consultation
between the City and the lessee or - in absence of mutual agreement - by three
experts. The lessee, may, if so desired redeem in advance the rent-charge due
over a fifty year term of long lease.
Apart from the General Conditions the following special regulations will be in
force:
1. The building to be erected on the premises is destined to be business
premises and to be used as office and laboratory. Parking, loading and
unloading must occur on the premises.
2. Construction of the premises must have been completed within 24 months
after the commencement date of the long lease.
3. Within the term as referred to under 2 the lessee must have provided for
hardening or planting on the unbuilt part of the premises and must so
maintain it subsequently; at the satisfaction of Mayor and Aldermen.
4a. The lessee must permit that cables, service-pipes, tubes etc. will be put
in the unbuilt part of the premises and will be maintained for the benefit
of the municipal services and companies, as well as for telecommunication.
4b. Damages resulting from the above mentioned works shall be repaired or
compensated by or on behalf of the contractor of these works.
ACCEPTANCE OF PREMISES IN LONG LEASE
The premises will be delivered to you in a state ripe for construction conform
the municipal guidelines in this respect. This means that obstacles and/or
foundation remains in the ground (if any) will be removed and that the premises,
if necessary, will be supplemented with sand and will be levelled. During the
supplementation with sand the starting point will be a closed sand distribution
system during the construction. In connection with the exact specifications you
should contact through my department in an early stage the section Land and
Water Works of the Public Works Department.
For further data concerning the acceptance of the long lease premises I refer to
the attached brochure "What you should know further".
FINANCIAL DATA
The annual rent-charge of Dfl. 162.000, -- is based on a land price of Dfl. 450.
- -- and a rental percentage of 8.9%. The
<PAGE>
-3-
canon must be paid in advance in two equal semi-annual installments as referred
to on the attached invoice no. 708349.
If you wish to pay in advance the rental over the full rental period of 50 years
the redemption price amounts to Dfl. 2.034.035, --. This amount is due as of the
date that the long lease right commences or is deemed to have commenced and must
ultimately be paid upon execution of the long lease deed before a notary. During
the period (if any) between commencement date of the long lease and payment
interest is due the rate being equal to the legal interest rate. As of March 1,
1987 the long lease is deemed to become effective.
Conform article 31 of the General Conditions all cost relating to the issue of
the premises in long lease (such as a notary fee, land register fee, taxes) are
for your account.
I draw your attention to the fact that value added (BTW) is due on the amount of
the land price of the premises in long lease at the rate applicable at the time
of the execution of the notarial deed.
FINAL PROVISIONS
- - EXECUTION OF NOTARIAL DEED
As it appears that you will begin to use the premises prior to the
execution of the long lease deed, parties shall act as if the long lease
deed already has been registered in the public registers as of March 1,
1987, which date shall be deemed to be the commencement date of the long
lease.
I draw now already your attention to the fact that a notary located in this
city must be instructed to execute the long lease deed.
- - ACCEPTANCE
I request you to advise me within one month after the date of this letter
whether you agree with the above by returning the attached note of
acceptance.
Thereafter I shall request Mayor and Aldermen to submit the issue in long
lease for ratification by the municipal council.
I have sent a copy of the long lease offer for advice to the municipal
department of Physical Planning and Public Works; I shall advise you of any
further conditions to be put if the advice so requires.
<PAGE>
- 4 -
For further information or clarification of this offer you may contact the
official of my department referred to in the heading of this letter.
The Municipal Land Company
(Signed illegible)
Attachments 1. Drawing
2. General Conditions
3. Invoice annual rent-charge
4. What you should know further
5. Note of acceptance
<PAGE>
- 4 -
Translation
File number:
Plan number:
Premises:
NOTE OF ACCEPTANCE
(The undersigned)
hereby declares to agree with the offer in long lease as is made by the
Municipal Land Company of Amsterdam in its letter ref. no._______of
(date)_______.
In addition the undersigned declares (not) to make use of the opportunity to
redeem the rental-charge (canon) at this moment.
The rental-charge (canon) of Dfl._______will be paid per (date)_______by
transfer to postal account no. 4600062 of the Municipal Land Company of
Amsterdam.
The undersigned declares to charge notary_______with the execution of the long
lease deed.
Place
Date
Signature
<PAGE>
EXHIBIT 10.57
DESCRIPTION OF CHIRON'S 1995
EXECUTIVE OFFICER 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 Compensation Committee of the Board of Directors. Except to the extent
provided under the Chiron Corporation 1995 Executive Officer Variable Cash
Compensation Plan, the Compensation Committee has based its decisions
regarding compensation in fiscal year 1995 for executive officers as a group,
on (i) a qualitative evaluation of the Company's overall performance in 1995,
including the strategic repositioning of the Company's business units (the
acquisition and integration of Ciba Corning Diagnostics Corp. into Chiron
Diagnostics, the acquisition and integration of IOLAB's surgical business
into Chiron Vision, the acquisition and integration of Viagene, Inc. into
Chiron Technologies) and the development and implementation of strategic
initiatives to position each business unit for sustainable and profitable
growth and to play an important role in the markets it serves; (ii) analysis of
compensation programs and amounts paid for comparable benchmark positions in
other biotechnology, high technology 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 1995, 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 50th percentile,
but with the opportunity up to 75th percentile, of total cash compensation as
shown by comparative data.
<PAGE>
Exhibit 10.65
[CHIRON LETTERHEAD]
June 28, 1995
Mr. C. William Zadel
President and Chief Executive Officer
Ciba Corning Diagnostics Corp
63 North Street
Medfield, MA 02052-1688
Dear Bill:
This letter confirms the terms of our understanding regarding the termination of
your employment with Ciba Corning Diagnostics Corp. ("CCD").
You have expressed the intention to resign your offices as President and Chief
Executive Officer of CCD and otherwise to terminate your employment with CCD.
You have offered to continue to serve in these capacities during a transitional
period, ending not sooner than August 31, 1995 and not later than December 31,
1995, during which time a successor would be recruited by Chiron, in
consideration of a mutually acceptable severance and termination agreement.
This letter represents that agreement.
1. You will continue to serve as the President and Chief Executive Officer
of CCD until that date specified by Chiron in writing, which shall be not
earlier than August 31, 1995 and not later than December 31, 1995 (the
"Termination Date"). Except as otherwise specifically provided in this Letter
Agreement, all of your existing employment benefits will continue until the
Termination Date, in accordance with their terms as of May 18, 1995, and then
they will cease.
2. Your base salary is increased effective June 1, 1995 by 7% to $342,400
per annum ("Base Salary"), payable periodically with the regular CCD payroll.
Your Base Salary will continue to be paid to the Termination Date and then shall
cease to be paid.
3. On or promptly following the Termination Date, CCD shall pay to you the
amounts then owing, if any, under its normal policies for terminating employees
for earned vacation and sick leave.
<PAGE>
C. William Zadel
June 28, 1995
Page 2
4. Promptly following completion of the 1995 audit of CCD, CCD shall pay
to you the amount that would have been earned by you under the CCD Annual
Incentive Plan for the full 1995 fiscal year, without regard to the actual
Termination Date.
5. You will not receive any payment for 1995 under the CCD Long-term
Incentive Plan. In lieu thereof, CCD shall pay to you the amount of $171,200 on
a date following the Termination Date to be mutually agreed, but in no event
later than January 31, 1996.
6. On January 1, 1996 and January 1, 1997, CCD will pay to you lump sum
payments of $650,560 and $325,280 respectively, representing approximately 18
months of cash compensation in salary and target short-term and long-term cash
compensation. In addition, provided that you have not then accepted a Successor
Position (as defined below), commencing with the first full calendar month
following the elapse of 18 months from the Termination Date, CCD will pay to you
a further monthly severance amount equal to $54,213 per month up to six months
and $28,533 per month up to an additional six months, until you accept a
Successor Position, but in no event for more than 12 months in the aggregate.
7. Until such time as you accept a Successor Position, CCD will maintain
in effect for your benefit at its expense the medical, dental and life insurance
coverage that you presently enjoy under CCD's existing policies. The maximum
time of this benefit is 30 months after the Termination Date. In addition, in
lieu of participation in the post-retirement medical program established for
eligible CCD employees following the close of the transaction, Chiron will make
you a lump sum cash payment of $33,000.
8. The term "Successor Position" means such full-time and permanent
employment as you may accept in your discretion, including self-employment as a
consultant, or retirement.
9. All payments provided herein shall be subject to all applicable
withholding obligations of CCD.
<PAGE>
C. William Zadel
June 28, 1995
Page 3
10. Nothing in this Letter Agreement alters your rights as vested under
the CCD Pension Plan in accordance with the terms of that plan as of May 18,
1995.
11. All Chiron stock options granted to you shall be cancelled without
having become vested as of the Termination Date.
12. The obligations of CCD and Chiron under this Letter Agreement are
conditioned upon your performance of your responsibilities to the best of your
ability as President and Chief Executive Officer of CCD through the Termination
Date, including without limitation the management of the business and operations
of CCD in the ordinary course, the facilitation and implementation of the plan
to integrate CCD and the Diagnostics Division of Chiron and the execution of all
applicable policies and directions for the governance of CCD as adopted from
time to time by its Board of Directors, or by Chiron as its sole stockholder,
and upon your agreement to provide reasonable consultation, advise and
assistance to CCD and Chiron following the Termination Date from time to time at
their reasonable request and at their expense.
13. This Letter Agreement contains and constitutes the entire
understanding and agreement between CCD and you respecting your employment with
CCD and supersedes and cancels all previous written or verbal negotiations,
agreements, commitments, and writings in connection herewith. It also
represents the complete compromise, accord, and satisfaction of any and all
claims that you may have or acquire regarding the termination of your employment
by CCD, and, except with respect to any rights, obligations or duties arising
out of this Letter Agreement, claims for unemployment and workers' compensation
benefits in accordance with applicable law, or any right that you have to
benefits under this Letter Agreement or any company employee benefit plan in
accordance with the Employee Retirement Income Security Act, all of which are
expressly excluded from this release, you hereby release and discharge CCD,
Chiron and their respective officers, directors, and stockholders from any
liability, obligation, claim or cause of action relating to or arising out of
your employment by CCD and/or its termination, including any claim arising under
that certain letter to you dated January 4, 1995 and signed on behalf of Chiron
by Edward E. Penhoet or under any other written or oral agreement or any course
of dealing, custom or practice or otherwise.
<PAGE>
C. William Zadel
June 28, 1995
Page 4
14. This Letter Agreement shall be binding upon CCD and you and may not be
released, discharged, abandoned, supplemented, amended, changed, or modified in
any manner, orally or otherwise, except by an instrument in writing of
concurrent or subsequent date, signed by a duly-authorized officer or
representative of each of CCD and you.
15. The terms of this Letter Agreement are contractual in nature and not a
mere recital. This Letter Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts. This Letter
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, and in pleading or proving any provision of this Letter Agreement it
shall not be necessary to produce more than one such counterpart.
16. You hereby confirm your continuing obligations to preserve the
confidentiality of all trade secrets and other proprietary information acquired
by you from or through CCD, Chiron, Ciba-Geigy, Ltd., including without
limitation scientific information and results, customer lists, and business and
strategic plans.
If the foregoing correctly reflects our understanding, please sign and
return to me one copy of this Letter Agreement.
CHIRON CORPORATION
By /s/ William J. Rutter
------------------
Its Chairman
------------------
AGREED:
/s/ C. William Zadel
- ---------------------
C. William Zadel
July 5, 1995
- ---------------------
Date
<PAGE>
Exhibit 10.73
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is entered into
effective as of March 15, 1995, by and between BGR ASSOCIATES, A CALIFORNIA
LIMITED PARTNERSHIP ("Lessor"), and CHIRON CORPORATION, a Delaware
corporation ("Lessee"), with reference to the following facts:
A. Lessor and Lessee are parties to that certain Lease dated December
17, 1984, entered into by Lessor and Lessee's predecessor, Cetus Corporation,
as amended by an Amendment to Lease dated February 1, 1986 (as so amended,
the "Lease"). The property covered by the Lease is located in Emeryville,
California, and is more particularly described in the Lease.
B. Lessor, Lessee and certain other parties related to Lessor have
entered into that certain Option Agreement of even date herewith (the "Option
Agreement"), pursuant to which Lessor has been granted to Lessee the option,
subject to the terms and conditions of the Option Agreement, to purchase the
property covered by the Lease as well as other property in the vicinity
thereof. As provided for in Section 5.a of the Option Agreement, Lessee has
agreed to waive certain rights to terminate the Lease as part of the
consideration to Lessor for granting such option to Lessee.
C. Lessor and Lessee are entering into this Second Amendment pursuant
to Section 5.d of the Option Agreement to further evidence Lessee's waiver of
termination rights as provided for in the Option Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lessor and Lessee hereby agree as follows (capitalized terms
used herein but not herein defined shall have the meaning ascribed to them in
the Lease):
1. AMENDMENT OF PARAGRAPH 3.2. As provided in the Option Agreement,
Lessee has irrevocably waived and relinquished its right under Paragraph 3.2
of the Lease to terminate the Lease as of June 30, 1996, and June 30, 1998;
and in furtherance of the foregoing, Lessor and Lessee hereby amend
Paragraph 3.2 of the Lease by deleting therefrom the words "second, fourth,
sixth, eighth" in the third sentence of said paragraph, which sentence begins
in the tenth (10th) line of said paragraph with the phrase "Notwithstanding
anything to the contrary in this Lease, ..."
<PAGE>
2. STATUS OF LEASE. Except as amended hereby, the Lease remains
unamended; and as amended hereby, the Lease and all the terms and conditions
thereof remain in full force and effect.
3. COUNTERPARTS. This Second Amendment may be executed in multiple
counterparts, each of which shall constitute an original hereof, and all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Second Amendment
as of the date first set forth above.
LESSEE: LESSOR:
CHIRON CORPORATION, BGR ASSOCIATES, A CALIFORNIA
a Delaware corporation LIMITED PARTNERSHIP
By: ___________________________ By: _____________________________
Richard K. Robbins
Its: ___________________________ Managing General Partner
2
<PAGE>
Exhibit 10.80
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
CHIRON FUNDING L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT (this ``Agreement") is entered
into and effective as of December 28, 1995 (the "Effective Date"), among Chiron
Corporation, a Delaware corporation ("Chiron"), Chiron Biocine Company and
Biocine S.p.A., both of which are wholly owned Affiliates of Chiron, and Ciba-
Geigy Corporation, a New York corporation ("Ciba"), Chiron, its Affiliates and
Ciba are sometimes referred to herein as the "Members".
I
FORMATION OF THE COMPANY
I.1 FORMATION AND EFFECTIVE DATE. The parties hereby agree to organize a
limited liability company (the ``Company") under the Delaware Limited Liability
Company Act, (the "Act"). Prior to execution of this Agreement, as the Initial
Member, Chiron has caused a Certificate of Formation conforming to the
requirements of the Act to be executed and filed with the Office of the
Secretary of State of the State of Delaware. The Company shall commence
business on or about the Effective Date.
1.2 NAME AND PRINCIPAL PLACE OF BUSINESS. The name of the Company is
"Chiron Funding L.L.C.". The principal place of business of the Company shall
be in such place or places as the Members determine from time to time, with the
initial such principal place of business being located in 4560 Horton Street,
Emeryville, California.
1.3 AGREEMENT AMONG MEMBERS. For and in consideration of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Members hereby
agree to the terms and conditions of this Agreement, as it may from time to time
be amended in accordance with its terms. Except to the extent a provision of
the Agreement expressly incorporates federal income tax rules by reference to
sections of the Code or Treasury Regulations or is expressly prohibited or
ineffective under the Act, the Agreement shall govern, even when inconsistent
with, or different from, the provisions of the Act or any other law or rule.
1.4 SCOPE OF BUSINESS. The Company may engage in any lawful business
permitted by the Act or the laws of any jurisdiction in which the Company may do
business.
1
<PAGE>
The Company shall have the authority to do all things necessary or
convenient to accomplish its purpose and operate its business as described in
this Section 1.4, subject to the provisions of this Agreement.
1.5 NO STATE-LAW PARTNERSHIP. The Members intend that the Company not be
a partnership (including, without limitation, a limited partnership) or joint
venture, and that no Member be a partner or joint venturer of any other Member,
for any purposes other than federal and state tax purposes, and this Agreement
should not be construed to suggest otherwise.
1.6 DEFINITIONS. All references in this Agreement to financial
statements, assets, liabilities, profits and losses and similar accounting items
with respect to the Company shall mean such items prepared or determined using
the accrual method of accounting and the application of generally accepted
accounting principles as from time to time in effect in the United States.
For purposes of this Agreement, the following shall have the meanings set
forth respectively after each:
"ACCOUNTING PERIOD" shall mean the Fiscal Year; provided, however,
that an interim closing of the books of the Company shall take place if, within
an Accounting Period, additional capital is contributed to or amounts are
distributed by or withdrawn from the Company, if such contribution, distribution
or withdrawal results in a change in the allocation of subsequent profits,
losses, contributions or distributions.
"AFFILIATES" of Chiron shall mean all corporations, or other entities,
more than 50% of whose shares or voting interests are owned, directly or
indirectly, by Chiron; "Affiliates" of Ciba shall mean Ciba Geigy Limited of
Basle Switzerland and all corporations, or entities, more than 50% of whose
shares or voting interests are owned, directly or indirectly, by Ciba-Geigy
Limited.
"CAPITAL ACCOUNT" of a Member shall mean the separate Capital Account
maintained in accordance with Article 5.
"CAPITAL CONTRIBUTION" of a Member shall mean the assets or property
contributed to the Company by or on behalf of any member as consideration for a
Membership Interest. For the purposes of this Agreement, the value of property
contributed shall be deemed equal to each member"s share of the maximum Net
Purchased Amount under Section 2.3.2.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"FISCAL YEAR" shall mean the 52 or 53 week period beginning on the
Monday closest to January 1 and ending on the Sunday closest to December 31 of
each year, or as otherwise required by law.
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"MEMBERSHIP INTEREST" shall mean the rights of a Member in
distributions (liquidating or otherwise) and allocations of the profits, losses,
gains, deductions and credits of the Company.
"NET INCOME OR NET LOSS" shall mean for any Fiscal Year the amount
computed as of the last day thereof of the net income or loss computed under
generally accepted accounting principles.
"PERCENTAGE INTEREST" shall mean with respect to any Member, a
fraction (expressed as a percentage), the numerator of which is the total of the
Member's Capital Contribution and the denominator of which is the total of all
Capital Contributions of all Members.
"TREASURY REGULATIONS" means regulations issued by the U.S. Treasury
Department pursuant to the Code.
II
CONTRIBUTIONS TO CAPITAL; TRANSFERS OF MEMBERSHIP INTEREST
2.1 INITIAL CONTRIBUTIONS AND TRANSFERS. As of the execution date of this
Agreement, the following have occurred:
2.1.1 INITIAL CONTRIBUTION BY CHIRON AND ITS AFFILIATES. Chiron
and its Affiliates have first made the following contribution to capital in
return for 100% of the Membership Interests in the Company. The portion of such
Membership Interests held by each of Chiron and its Affiliates is set forth in
Exhibit A. Such 100% of Membership Interests consists of 250,000 units of
Membership Interest, each referred to herein from time to time as a "Unit".
Chiron and its Affiliates have contributed the following:
(a) CASH. Cash in the amount of $2500.00.
(b) ROYALTY. A royalty agreement in the form of Exhibit B (the
"Royalty Agreement") with respect to royalties on certain specified
products (the "Products") arising from Funded Projects, as defined in
Section 2.3.4.
(c) CO-PROMOTION OPTION. The option to co-promote all of those
Products identified as "Adult Vaccines" on Schedule A of the Royalty
Agreement (the "Adult Vaccines") in all countries of the world other
than North America and Europe in which the Company, directly or
indirectly, through Ciba or otherwise, reasonably has the field sales
force and other promotional infrastructure necessary to successfully
promote the Adult Vaccines. In determining such adequacy, the
capabilities of Ciba's sales force and promotional infrastructure or
the sales force and promotional infrastructure of any Ciba Affiliate
shall be deemed to be the field sales force and promotional
infrastructure of the
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Company, in all countries where Ciba elects to undertake co-promotion
activities. The option to co-promote shall not apply to any Products
other than Adult Vaccines. Such option shall be exercisable by the
Company, on a country by country basis, by written notice to Chiron,
at any time until 180 days following the granting of the first
regulatory approval in North America or Europe to market and sell the
first Adult Vaccine for which such regulatory approval is obtained.
This option shall terminate automatically as to all Adult Vaccines, in
any country, with respect to which the option is not exercised by the
Company within the time limit set forth above, it being understood
that it may be in the interests of the parties to explore, without
obligation, a broadening and/or extension of such co-promotion.
(i) Upon exercise of the option by the Company, the parties
shall negotiate in good faith a co-promotion agreement for the
Adult Vaccines in the countries as to which the Company has
exercised its co-promotion option, on commercially reasonable
terms, which shall include (A) a pre-tax co-promotion profit to
the Company of not less than [CONFIDENTIAL TREATMENT REQUESTED] of
Net Sales of Adult Vaccines in such countries, (B) an obligation of
reasonable diligence, (C) a reservation in favor of Chiron of the
right to market to international public organizations such as UNICEF
and W.H.O., with an appropriate compensation to be paid to the Company
for any co-promotional activity agreed to be provided by the Company
supporting such international sales, and (D) such other terms as
the parties may then agree. The co-promotion right shall expire
as to each Adult Vaccine six (6) years after the first commercial
sale, on a country by country and product by product basis.
(ii) The Company agrees to exercise such option only in the
event that the Company is able to contract with Ciba (or other
entity acceptable to Ciba and Chiron) to perform the co-promotion
activities.
(iii) The Company, and in the event that the Company has granted
co-promotion rights hereunder to Ciba, the Company and Ciba shall
keep accurate books and records as to its co-promotion, which
books and records shall be subject to audit by Chiron, in the
same manner as set forth in Section 3.05.
(iv) All obligations and rights of Ciba under this Section
2.1.1(c) may be assigned to and performed by any of Ciba's
Affiliates.
2.1.2 INITIAL TRANSFER OF MEMBERSHIP INTEREST TO CIBA. Chiron
and/or its Affiliates have transferred to Ciba 12,000 Units of Membership
Interest in the Company in consideration of U.S. $12,000,000.
2.2 FURTHER CONTRIBUTIONS AND CREATION OF ADDITIONAL MEMBERSHIP INTEREST.
At any time, upon request of Chiron, and subject to the approval of Ciba
pursuant to Section 2.3.4,
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Chiron, directly or through its wholly owned affiliates, shall have the right to
receive additional Membership Interest in the Company, subject to a maximum of
300,000 aggregate Units of Membership Interest in the Company held by all
Members, in return for additional contributions of capital to the Company as
follows:
(a) CASH. Cash in an amount equal to the One Cent ($0.01) per Unit.
(b) PRODUCT RIGHTS. Chiron shall grant to the Company the right to
participate in commercial opportunities with respect to additional
products other than the Products, based on one or more of the
following structures, to be determined at Chiron"s election, but
subject to approval by Ciba:
(i) ROYALTY INTEREST. Chiron may grant to the Company the right
to receive a royalty on net sales of such products, subject to
acceptable terms and conditions, such as those set forth in the
Royalty Agreement.
(ii) MARKETING OR PROMOTION RIGHTS. Chiron may grant to the
Company the right to participate in the marketing and/or selling in
selected markets of the identified product(s). In such event, the
parties would agree upon a supply arrangement under which Chiron would
manufacture the products for sale through the Company or upon co-
promotion arrangements under which the Company would market products
sold through Chiron. Such rights would be subject to acceptable terms
and conditions, such as stated in Section 2.1.1(c) above.
(iii) PROFITS INTEREST. Chiron may grant to the Company the
right to receive a stated percentage of pre-tax profits and losses
from the sale of products developed, manufactured and marketed by
Chiron arising from the contributed project or products subject to
acceptable terms and conditions.
2.3 SALE OF MEMBERSHIP INTEREST TO CIBA.
2.3.1 CIBA OBLIGATION. From time to time at Chiron's request,
subject to the limitations set forth in this Section 2.3, during the period
commencing with the date hereof (the "Effective Date") and ending on December
31, 1999 (such period referred to herein as the "Funding Period"), Ciba agrees
to purchase and Chiron, or its Affiliate, agrees to sell to Ciba Units of
Membership Interest in the Company at a price of One Thousand Dollars ($1000.00)
per Unit.
2.3.2 AGGREGATE PURCHASE LIMITATIONS. Ciba's obligation to
purchase Units hereunder shall be subject to the following limitations:
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(a) The Net Purchased Amount, as defined below, shall not exceed
Two Hundred Fifty Million Dollars (U.S. $250,000,000); provided,
however, that such amount may be increased, at Chiron's request, to a
maximum of Three Hundred Million Dollars (U.S. $300,000,000) pursuant
to the Section 5.12 of the 1994 Investment Agreement. "Net Purchased
Amount" shall mean, at any time, the aggregate amount paid to Chiron
or its Affiliates by Ciba for the purchase of Units pursuant to this
Agreement, which shall include the $12,000,000 received by Chiron in
return for the initial transfer of Units to Ciba hereunder. The Net
Purchased Amount will be reduced by the aggregate amount of any
dividends or other capital distributions actually paid by the Company
to Ciba and any profits to Ciba from co-promotion or marketing
activity by Ciba pursuant to Section 2.1.1(c), in each case, through
the date of any required purchase of Units.
(b) The Net Purchased Amount shall not exceed at any time one
hundred percent (100%) of the R&D Costs, as defined below, incurred
during the Funding Period by Chiron and its Affiliates (including
without limitation Chiron Biocine Company and Biocine S.p.A.)
initially with respect to all subunit vaccines and traditional
vaccines and with respect to IGF-1 (collectively, the "Funded
Projects"). In the event that additional Funded Projects are added
pursuant to Sections 2.1.4 and 2.3.4, R&D Costs associated with such
projects shall be added to the preceding sentence. As used herein,
the "R&D Costs" for a given period shall mean the fully burdened,
fairly allocated costs of Chiron, on a consolidated basis, of
research, development, and regulatory approval activities with respect
to Funded Projects, as determined under Chiron's normal project
accounting practices, including reasonable and customary allocations
of indirect and overhead expenses and charges in the nature of
depreciation and amortization of capitalized cost, general and
administrative expenses, and out-of-pocket expenses, to the extent
that any of the foregoing were or are incurred on or after January 1,
1995. R&D Costs shall include Chiron's share of expenses of R& D
Costs of joint businesses with respect to Funded Projects.
2.3.3 TIMING LIMITATIONS. In no event shall Ciba be obligated to
purchase Units such that the purchase price paid exceeds
a) Thirty-four Million Dollars (U.S. $34,000,000) in 1995;
b) In 1996, One Hundred Sixteen Million Dollars (U.S. $116,000,000),
plus any unused portion of the funding limit for 1995 pursuant to
section 2.3.3(a); and
c) For subsequent calendar years, equal annual portions of the
remaining unexpended aggregate amount under Section 2.3.2 above.
2.3.4 FUNDED PROJECTS. Chiron agrees to use the proceeds of
sales of Units to Ciba hereunder solely for the purpose of research,
development and regulatory approval
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activities with respect to Funded Projects, determined in accordance
with this Section 2.3.4.
(a) In conjunction with any request by Chiron for the issuance
of additional Units pursuant to Section 2.2, Chiron shall provide to
Ciba proposals for research and development programs which Chiron
desires to fund or partially fund as Funded Projects through the sale
of such additional Units to Ciba. No limitation shall be placed upon
the number of Funded Projects that Chiron may present to Ciba during
the Funding Period.
(b) Upon acceptance by Ciba of a proposal pursuant to Section
2.3.4(a), the Company shall be authorized to issue additional Units
pursuant to Section 2.2, and the proposed project shall become a
Funded Project. A Funded Project shall remain a Funded Project for
purposes of this Agreement unless or until Chiron elects, in its sole
discretion, to discontinue research and development with respect to
such project. Chiron will manage the research with respect to Funded
Projects in its sole discretion.
(c) Chiron will prepare, in consultation with Ciba, annual and
quarterly forecasts of the R&D Costs for each Funded Project.
2.3.5 SALES OF UNITS. From time to time, not more frequently than
once per fiscal quarter and prior to the conclusion of the fiscal quarter,
Chiron shall provide Ciba with a written notice of the amount of Units that it
or its Affiliates wish to sell to Ciba, and the associated purchase price, all
in accordance with the provisions of this Article 2. Such purchase price shall
not exceed the lesser of (i) 100% of R&D Costs of the Funded Projects incurred
on or after January 1, 1995 and not previously funded through sales of Units
hereunder; or (ii) the maximum funding obligation of Ciba pursuant to Section
2.3.3 for the period in question. Ciba shall purchase the requested amount of
Units, by paying the purchase price in U.S. dollars in immediately available
funds, by wire transfer, unless otherwise mutually agreed. The purchase price
shall be due and payable within thirty (30) days following the notice delivered
by Chiron to Ciba pursuant to this Section 2.3.5.
2.3.6 NO OTHER TRANSFER OF MEMBERSHIP INTEREST. Chiron, its
Affiliates and Ciba agree that none of them shall transfer any Membership
Interest in the Company, nor shall the Company issue any new Membership
Interest, to any third party without the prior written consent of both Chiron
and Ciba; except that Ciba may transfer its Membership Interest, or cause future
Membership Interests to be purchased by, Ciba"s parent corporation or any wholly
owned subsidiary of Ciba"s parent corporation. Chiron further agrees that it
will not assign or transfer to a third party a controlling interest in any
Chiron Affiliate which is also a Member of the Company without the prior written
consent of Ciba.
2.3.7 RETAINED INTEREST BY CHIRON. In order to assure that the
Company has two Members at all times, Chiron agrees to retain and not to sell to
Ciba pursuant to this Section 2.3 at least one Unit of Membership in the
Company.
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ARTICLE III
CHIRON RESEARCH AND DEVELOPMENT ACTIVITY
3.1 DILIGENCE. Chiron and its Affiliates shall use reasonable commercial
diligence to pursue and complete the research and to develop, test, gain
regulatory approval for, market and sell the Products. In the event that less
than 100% of the R & D Costs of a Funded Project is provided to Chiron
hereunder, Chiron nevertheless shall spend its own portion of such R & D Costs
in conducting activities related to the Funded Project.
3.2. ALLOCATION OF FUNDING. Where a Funded Project includes more than one
product under development, and in the event that more than one Funded Project is
subject to funding hereunder, funds received by Chiron or its Affiliates through
sales of Units shall be allocated, among the Products within a Funded Project,
and among Funded Projects, in Chiron's sole discretion.
3.3 NO WARRANTY OF SUCCESS. CHIRON MAKES NO WARRANTIES OR GUARANTEES OF
ANY KIND THAT THE RESEARCH AND DEVELOPMENT ACTIVITIES FUNDED HEREUNDER WILL BE
SUCCESSFUL OR WILL ACTUALLY RESULT IN ANY PRODUCTS BEING MARKETED OR SOLD.
3.4 RIGHTS TO INVENTIONS. Nothing in this Agreement will cause Ciba or
the Company to obtain any ownership or license rights in any patent or other
intellectual property rights of Chiron in connection with any Funded Project; or
any other right or license not specifically granted herein or in the Royalty
Agreement. Chiron will own the right, title and interest in and to any new
inventions arising in the course of any Funded Project, to the extent such
inventions are made by Chiron, its employees, agents or assignors.
3.5 AUDIT RIGHTS. Chiron and its Affiliates agree to keep accurate books
and records of the funding received through sales of Units hereunder, and the R
& D Costs incurred with respect to Funded Projects. Ciba shall have the right,
at its own expense, for a period of three (3) years after the end of the Funding
Period, to have an independent certified public accountant ("CPA") reasonably
acceptable to Chiron examine the relevant books and records of Chiron and its
Affiliates, during normal business hours, at the principal offices of Chiron,
upon two (2) weeks advance written request, to verify the R & D Costs; provided,
however, that such audits shall not occur more than once per year. Said CPA
shall be under confidentiality obligations to Chiron, to reveal only whether
there is an error in the R & D Costs reported to Ciba, and if so, the amount of
such error.
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ARTICLE IV
REPURCHASE OF MEMBERSHIP INTEREST
4.1 RIGHT TO REPURCHASE UNITS. Chiron and/or its Affiliates shall have
the right (the "Buy-Out Right") to repurchase from Ciba all Units sold to Ciba
under this Agreement upon tender by Chiron to Ciba of payment in the amount of
the Buyout Amount (as hereinafter defined) in effect at the time of such tender;
provided that such right shall expire if such tender is not made prior to
January 1, 2002.
As used herein, "Buyout Amount" shall mean an amount equal to (i) the sum
of all Unit purchase payments made by Ciba prior to the date of such tender
pursuant to this Agreement, PLUS (ii) interest thereon from the date of payment
until the date of such tender at a rate equal to LIBOR determined and compounded
on a quarterly basis, LESS (iii) the aggregate amount of any dividends or
other capital distributions received or receivable by Ciba from the Company and
any pre-tax profits received by Ciba from co-promotion or marketing activity by
Ciba pursuant to Section 2.1.1(c), to the date of such tender, which exceed the
pre-tax profits which would ordinarily be payable to a third party conducting
such co-promotion or marketing activity, LESS (iv) interest on the amounts
referenced in (iii) above from the date of actual receipt of such amount by Ciba
until the date of such tender at a rate equal to LIBOR determined and compounded
on a quarterly basis. For the purposes of this Agreement, "LIBOR" means, with
respect to any calendar quarter, the three month U.S. Dollar rate as quoted by
the British Bankers Association (Bloomberg page "BBA", Telerate page "3767") as
of 11:00 a.m., London time, on the day that is two London banking days prior to
the commencement of such calendar quarter.
4.2 FORM OF PAYMENT. Chiron shall be entitled to make the payment of
the Buyout Amount in the form of cash, in immediately available funds, or Chiron
Common Stock ("Chiron Stock"), or a combination of the two. If Chiron shall
elect to employ Chiron Stock for the purposes of making such payment, such
Chiron Stock shall be valued at its Fair Market Value as of the date immediately
preceding the date on which such payment shall be made. As used herein, "Fair
Market Value" shall mean, as of any date of determination, the average of the
closing sale prices of Chiron Stock during the 10 trading day period immediately
preceding such date of determination on the principal United States securities
exchange registered under the Exchange Act on which Chiron Stock is listed, or,
if Chiron Stock is not listed on any such exchange, the average of the closing
sale prices or the closing bid quotations of the Chiron Stock during the 10
trading day period preceding such date of determination on the NASDAQ National
Market or any comparable system then in use, or, if no such quotations are
available, the fair market value of the Chiron Stock as of such date of
determination as determined in good faith by a majority of the Independent
Directors, as defined in that certain Governance Agreement among Ciba, Chiron
and Ciba-Geigy Corporation dated as of November 20, 1994.
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4.3 EFFECT ON CO-PROMOTION RIGHT. If, at the time of repurchase by Chiron
of Units pursuant to this Article 4, the Company has exercised the option to co-
promote the Adult Vaccines in one or more countries, pursuant to Section
2.1.1(c), and has contracted with Ciba to perform such obligations, Ciba shall
have the right to continue to co-promote Adult Vaccines then subject to said
right in such countries for the remainder of the term of such co-promotion
rights, all on the terms set forth in Section 2.1.1(c), or the right to expand
its co-promotion rights as provided in Section 4.4.
4.4 RESIDUAL RIGHTS. In the event that Chiron exercises its right to
repurchase all of the Units pursuant to this Article 4, Chiron agrees to grant
to Ciba the option (the "Residual Rights Option") to expand its marketing
rights, if any, with respect to all Adult Vaccines, as provided in this Section
4.04 (the "Residual Rights"). If exercised, Ciba would have the right to
convert its co-promotion right into the right to exclusively market and sell all
Adult Vaccines, in all countries of the world other than North America and
Europe, in which Ciba then has exercised its right to co-promote any Adult
Vaccine pursuant to Section 2.1.1(c) and to extend such exclusive marketing for
a period of six (6) years from the later of the date of Ciba's exercise of the
Residual Rights Option or the first approval for commercial sale, on a product
by product basis.
(a) The Residual Rights Option shall be exercisable by Ciba, by
written notice to Chiron, during the 60 days following Chiron's
exercise of its Buy-out Right. Upon exercise of the Residual Rights
Option by Ciba, the parties shall negotiate in good faith an agreement
under which Chiron would manufacture and supply, and Ciba would
market, sell and distribute, the Adult Vaccines in the countries as to
which Ciba has Residual Rights, all on commercially reasonable terms,
including reasonable and customary distributor obligations to use
diligence and to pursue and pay the cost of regulatory approvals and
other marketing, selling and product introduction activities.
(b) Such agreement shall provide for a pre-tax distributor
profit to Ciba of not less than [CONFIDENTIAL TREATMENT REQUESTED]
of Net Sales by Ciba of Adult Vaccines in such countries. In the
event that the Net Purchased Amount, as defined in Section 2.3.2 is
less than $250,000,000, such minimum pre-tax distribution profit
payable to Ciba hereunder will be reduced by multiplying
[CONFIDENTIAL TREATMENT REQUESTED] of net
sales by the following fraction:
Net Purchased Amount
--------------------
$250,000,000
(c) Ciba's exclusive rights pursuant to this Section 4.4 shall
be subject to the continuation of such promotional and sales activity
as Chiron may be permitted to conduct under any applicable co-
promotion and other marketing agreements entered into between Chiron
and the Company or Ciba prior to the exercise of Chiron's Buy-Out
Right and to the negotiation of equitable and reasonable terms for (i)
the phase out of such activity by Chiron after the expiration of the
original terms of such agreements and (ii)
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compensating Ciba for the reduction of such exclusivity by reason of
Chiron's continued activity.
4.5 COOPERATION. Chiron and Ciba shall meet and confer from time to time
to consider whether and to what extent it is in their respective best interests
to permit Chiron or any third party to participate in the marketing of Adult
Vaccines on a country by country basis. Nothing in this Section 4.5, however,
shall obligate the Company or Ciba either (i) to exercise the options to acquire
co-promotion rights or Residual Rights or (ii) if Ciba exercises the option to
acquire the Residual Rights, to alter the Residual Rights as set forth in
Section 4.4, except to the extent that Ciba determines it to be in its best
interest to do so in the reasonable exercise of its discretion.
ARTICLE V
CAPITAL ACCOUNTS
CAPITAL ACCOUNTS. The Company shall establish and maintain an individual
Capital Account for each of the Members in accordance with Treasury Regulation
1.704-1(b)(2)(iv).
ARTICLE VI
MEETINGS OF MEMBERS
6.1 PLACE OF MEETINGS. All meetings of Members shall be held at the
principal place of business of the Company or at such other place as may be
designated from time to time by the Members.
6.2 ANNUAL MEETING. An annual meeting of Members for the election of the
Board of Directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on such date designated by
the Board of Directors but not less frequently than once each fiscal year.
6.3 SPECIAL MEETINGS. Special meetings of Members may be called at any
time by the Members or by any Member upon written request.
6.4 QUORUM. A quorum shall be present at a meeting of Members only if
Chiron and Ciba are present in person or represented by proxy.
6.5 VOTING AND PROXIES. Each Member shall have a number of votes equal to
the number of Units of Membership Interest held by it.
However, the Members hereby agree that:
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(i) the Company shall not enter into any agreements or conduct any
transactions, other than those specifically authorized in this
Agreement or the Royalty Agreement, without the approval of both
Chiron and Ciba.
(ii) Ciba shall have the right to require that the Company exercise
its rights under this Agreement, including without limitation
the co-promotion option, and under the Royalty Agreement. Each
of Chiron and Ciba shall be authorized to enforce against the
other any and all rights of the Company against such other
party.
6.6 ACTION WITHOUT MEETING. Any action required or permitted to be taken
at any annual or special meeting of Members of the Company may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by all Members.
6.7 PARTICIPATION BY TELEPHONE. Members may participate in a meeting
through use of conference telephone or similar communications equipment, so long
as all Members participating in such meeting can hear one another.
ARTICLE VII
MANAGEMENT
7.1 BOARD OF DIRECTORS.
(a) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to Section 6.5
and except for situations in which the approval of the Members is required by
this Agreement or by applicable law, the day-to-day management of the business
and affairs of the Company shall be vested in the Board of Directors, which
power and authority shall be subject to delegation by the Board of Directors to
the officers and other agents of the Company in the manner provided herein.
(b) ELECTION OF BOARD OF DIRECTORS. The Board of Directors shall
consist of three members, two of which shall be appointed by the Member holding
the majority of Units of Membership Interest, with the remaining Director
appointed by the other Member. Unless otherwise agreed by the Members, one
Director appointed by each Member will have appropriate scientific background.
For this purpose, Chiron shall be deemed to hold the Units held by its
Affiliates.
The initial Directors will be William Green and Dennis Winger;
provided that as soon as practicable following the execution of this Agreement,
Chiron and Ciba shall elect directors in accordance with the preceding
paragraph.
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Thereafter, the members of the Board of Directors shall be
elected at the annual meeting of Members and shall hold office until their
successors have been elected and qualified, or until their death, resignation or
removal, in accordance with this Section 7.1.
(c) VACANCIES; REMOVAL; RESIGNATION. Any vacancy occurring on the
Board of Directors may be filled by the party who shall have initially elected
the Director whose position shall have become vacant. A Director elected to
fill a vacancy shall be elected for the unexpired term of his or her predecessor
in office. A Director may be removed and a new Director elected by the written
action of only the Member who initially elected the Director to be removed,
pursuant to Section 7.1(b) above. Any Director may resign at any time.
7.2 CHANGE IN HOLDER OF MAJORITY OF UNITS. In the event that Ciba
acquires a majority interest in the Company, the parties agree to hold a Members
meeting within thirty (30) days following the date on which such majority
interest is acquired. At such meeting, new Directors shall be elected pursuant
to Section 7.1, and new officers shall be appointed pursuant to Section 7.3.
7.3 OFFICERS.
(a) APPOINTMENT. Unless otherwise agreed, the Company shall
have three officers, with the President and one other officer appointed by the
Directors designated by the holder of a majority of Units, and the remaining
officer appointed by the Directors designated by the other Member.
The initial officers of the Company shall be Dennis Winger,
President, and William Green, Secretary; provided that as soon as practicable
following execution of this Agreement, the Directors designated by Ciba shall
appoint a third officer of the Company.
(b) AUTHORITY. Any officers so designated shall have such
authority and perform such duties as the Board of Directors may, from time to
time, delegate to them. Unless the Members decide otherwise, if the title is
one commonly used for officers of a business corporation formed under the
Delaware General Corporation Law, the assignment of such title shall constitute
the delegation to such officer of the authority and duties that are normally
associated with that office, subject to any specific delegation of authority and
duties made to such officer by the Members or the Board of Directors. Each
officer shall hold office until his or her successor shall be duly designated
and shall qualify or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided. Any number of offices may be held
by the same person.
(c) VACANCIES; REMOVAL; RESIGNATION. Any officer may resign as
such at any time. Such resignation shall be made in writing and shall take
effect at the time specified therein, or if
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no time be specified, at the time of its receipt by the Board of Directors. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation. Any officer may be removed as such,
either with or without cause, by the Directors who appointed such officer. Any
vacancy occurring in any office of the Company may be filled by the Directors
who had the authority to elect the officer holding such position.
7.4 STANDARD OF CARE.
(a) It is understood that the business of the Company involves a
degree of risk. The Board of Directors shall not be liable, responsible or
accountable in damages or otherwise to any Member for, and the Company shall
indemnify and save harmless the Board of Directors from and against, any loss or
damage incurred by reason of any act or omission performed or omitted by it in
good faith on behalf of the Company and in a manner reasonably believed by it to
be within the scope of the authority granted to it by this Agreement, provided
that the Board of Directors was not guilty of gross negligence or willful
misconduct with respect to such act or omission. Any act or omission performed
or omitted by the Board of Directors in good faith on advice of counsel,
accountants and other independent experts to the Company shall be conclusively
deemed to have been performed or omitted by the Board of Directors in good
faith.
(b) The Board of Directors acting in good faith, may rely upon, and
shall be protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.
ARTICLE VIII
ACCOUNTING AND RECORDS
8.1 FINANCIAL AND TAX REPORTING. The Company shall prepare its financial
statements in accordance with generally accepted accounting principles as from
time to time in effect using the accrual method of accounting on a Fiscal Year
basis, and shall prepare its income tax information returns on a Fiscal Year
basis, using the method of accounting required under the Code and Treasury
Regulations or when one or more alternative methods are available, using the
method of accounting which the Board of Directors deems appropriate.
8.2 SUPERVISION; INSPECTION OF BOOKS. Proper and complete books of
account and records of the business of the Company shall be kept under the
supervision of the Board of Directors at the Company's principal office or at
such other place as designated by the Board of Directors. Such books and
records shall be open to inspection, audit and copying by any Member, or its
designated representative, upon reasonable notice at any time during business
hours for any purpose reasonably related to the Member's interest in the
Company. Any
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information so obtained or copied shall be kept and maintained in strictest
confidence except as required by law.
8.3 RELIANCE ON RECORDS AND BOOKS OF ACCOUNT. Any Member shall be fully
protected in relying in good faith upon the records and books of account of the
Company and upon such information, opinions, reports or statements presented to
the Company by its Board of Directors, any of its other Members, officers, or by
any other person, as to matters the Member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits or losses of the Company or any other facts pertinent to the existence
and amount of assets from which distributions to Members might properly be paid.
8.4 TAX RETURNS. The Member who is named the "tax matters partner"
pursuant to Section 9.3(f) shall, on or before the due date prescribed by law
(including any extensions of time), file a federal income tax information return
and transmit to each Member a schedule showing such Member's distributive share
of the Company's taxable income, deductions and credits, and all other
information necessary for such members timely to file their Federal income tax
returns. Such Member similarly shall file all appropriate state and local
income tax returns or information returns on behalf of the Company. The Board
of Directors shall, from time to time as appropriate under Section 6654 of the
Code, provide to the Members interim financial information regarding the Company
so that the Members and/or the direct or indirect equity holders of any Member
may timely determine their quarterly federal estimated tax obligations.
ARTICLE IX
ALLOCATIONS
9.1 ALLOCATION OF NET INCOME OR NET LOSS.
(a) For each Accounting Period, Net Loss shall be allocated as
follows:
(i) First, to the extent that the Capital Account of any
Member (determined after giving effect to adjustments attributable to any
contributions made or distributions received during that Accounting Period)
exceeds the amount of distribution to which such Member would be entitled to
receive under Section 13.4 were the Company to be dissolved and its assets
distributed in liquidation, then to each Member having such excess in proportion
to such excess;
(ii) Second, any remaining Net Loss shall be allocated to
Members in proportion to their Percentage Interests.
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(b) For each Accounting Period, Net Income shall be allocated as
follows:
(i) First to the extent that the Capital Account of any Member
(determined after giving effect to adjustments attributable to any contributions
made or distributions received during that Accounting Period) is less than the
amount of distribution to which such Member would be entitled under Section 13.4
were the Company to be dissolved and its assets distributed in liquidation, then
Net Income shall be allocated to each Member having a shortfall in the
proportion to such shortfall;
(ii) Second, any remaining Net Income shall be allocated to
Members in proportion to their Percentage Interests.
9.2 TIME OF ALLOCATIONS. The Net Income or Net Loss of the Company for
each Accounting Period shall be allocated to the Members' Capital Accounts
during the Accounting Period in accordance with the provisions of this Article
IX.
9.3 SPECIAL TAX PROVISIONS.
(a) TAX ALLOCATIONS. Except as otherwise provided in this
Article IX, items of Company income, gain, loss or deduction recognized for
income tax purposes shall be allocated in the same manner that the corresponding
items entering into the calculation of Net Income and Net Loss are allocated
pursuant to this Agreement.
(b) SECTION 704(c) ADJUSTMENTS. In accordance with Code Section
704(c) and the Treasury Regulations thereunder, items of income, gain, loss and
deduction with respect to an asset, if any, contributed to the capital of the
Company shall, solely for tax purposes, be allocated between the Members so as
to take account of any variation between the adjusted basis of such property to
the Company for Federal income tax purposes and its fair value upon contribution
to the Company. Upon a revaluation of the Members' Capital Accounts under this
Agreement to reflect unrealized gain or loss accruing during any Accounting
Period, subsequent allocations of items of income, gain, loss and deduction for
tax purposes shall be adjusted to take account of any variation between the
adjusted tax basis and the adjusted value of the Company's assets in accordance
with the principles of Code Section 704(c) and subparagraph (d) and (g) of
Treasury Regulation Section 1.704-1(b)(2)(iv).
(c) OTHER. The allocations provided herein shall be subject to the
following exceptions:
(i) LIMITATIONS OF LOSSES. A Member's Capital Account shall not
be allocated any item of Net Loss to the extent such allocation would cause such
Capital Account to have a negative balance (computed in accordance with the
principles of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)) in excess of any
amount such Member is obligated to restore (or
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deemed to be obligated to restore under Treasury Regulation Section 1.704-
1(b)(2)) to the Company.
(ii) QUALIFIED INCOME OFFSET. If any Member unexpectedly
receives any adjustments, allocations or distributions which would cause its
Capital Account to have a negative balance (computed with such adjustments as
are required under the Treasury Regulations) in excess of any amount such Member
is obligated to restore (or deemed to be obligated to restore under Treasury
Regulation Section 1.704-1(b)(2)) to the Company, then special allocations of
Net Income (and items thereof), together with corresponding tax items, shall be
made as quickly as possible so as to comply with the "qualified income offset"
provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d).
(iii) SUBSEQUENT ALLOCATIONS. Any special allocations pursuant
to the foregoing provisions of this subsection (c) shall be taken into account
as soon as possible in computing subsequent allocations of Net Income or Net
Loss (and items thereof), together with corresponding tax items, so that over
the term of the Company the aggregate amount of any Net Income or Net Loss
allocated to each Member shall, to the extent possible, be equal to the
aggregate amount that would have been allocated to each such Member if the
allocations pursuant to the foregoing provisions of this subsection (c) had not
occurred.
(d) SECTION 754 ELECTION. A Section 754 election shall be made for
the Company. In the event of an adjustment to the adjusted tax basis of any
Company asset under Code Section 734(b) or Code Section 743(b) pursuant to a
Section 754 election by the Company, subsequent allocations of tax items shall
reflect such adjustment consistent with the Treasury Regulations promulgated
under Sections 704, 734 and 743 of the Code.
(e) ALLOCATIONS UPON TRANSFERS OF COMPANY INTERESTS. If, during an
Accounting Period, a Member (the "Transferring Member") transfers all or part
of its interest in the Company to another Member, items of Net Income and Net
Loss, together with corresponding tax items, that otherwise would have been
allocated to the Transferring Member with regard to such Accounting Period shall
be allocated between the Transferring Member and the other Member in accordance
with their respective interests in the Company during the Accounting Period
using any method permitted by Section 706 of the Code and selected by the Board
of Directors.
(f) TAX MATTERS PARTNER. The " tax matters partner" of the Company
within the meaning of Section 6231(a)(7) of the Code shall be Chiron, provided
Ciba shall have the right, upon notice to Chiron, to become the "tax matters
partner", for any year in which as of the beginning of such year it held a
majority of the Membership Units in the Company. The tax matters partner shall
act for and on behalf of the Company to the extent required under Sections 6221
through 6233 of the Code and shall provide timely notification to the Members of
all proposed adjustments to, or administrative proceedings regarding, Company
tax items.
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(g) ADJUSTMENTS TO TAXABLE INCOME UPON EXAMINATION. If upon
examination of any tax return an adjustment is made by any tax authority and
agreed to by the Company for any Accounting Period, such adjustment shall be
allocated among Members in accordance with the provisions of Section 9.1(a) and
(b). No such adjustment shall be agreed to by the Company, except with the
unanimous consent of the Unit holders.
ARTICLE X
DISTRIBUTIONS
10.1 DISTRIBUTIONS AND WITHDRAWALS. Distributions and withdrawals shall be
made as follows:
(a) DISTRIBUTION OF AVAILABLE CASH. To the extent the Company's cash
on hand exceeds its current and anticipated needs, including, without
limitation, needs for operating expenses, debt service, acquisitions, reserves
and mandatory distributions, if any, including distributions in liquidation, the
Board of Directors, with the consent of all Members, may make distributions to
the Members pro rata in accordance with their respective Capital Account
balances.
(b) DISTRIBUTIONS IN KIND.
(i) The Board of Directors, with the consent of all Members,
may elect to distribute any non-cash assets held by the Company in kind to the
Members pro rata in accordance with their respective Capital Account balances
(ii) Any non-cash assets distributed in kind shall be subject
to such conditions and restrictions as are legally required or as are
contractually imposed on the Company and its successors.
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(c) NO OTHER WITHDRAWALS. Except as provided in this Section 10.1,
no withdrawals or distributions are permitted or required.
(d) EFFECT OF WITHHOLDING. To the extent the Company reasonably
determines that it is required to withhold and pay any amount for local, state,
federal and/or foreign taxes with respect to any Member, the Company is hereby
expressly authorized to make such payment. The amount of any such payment shall
be treated as an advance from the Company to the Member with respect to whom the
withholding and payment were required, and the Company is hereby expressly
authorized to collect repayment of such advance out of any and all distributions
which are then or may thereafter become payable to such Member. This Section
10.1(d) shall not preclude the Company from pursuing any other remedy which may
be available.
ARTICLE XI
INDEMNIFICATION AND LIMITATION OF LIABILITY
11.1 INDEMNIFICATION WITH RESPECT TO MANAGEMENT OF THE COMPANY.
(a) The Company shall indemnify and hold harmless the Members, the
Board of Directors, officers, employees and agents of the Company, and the
partners, shareholders, controlling persons, officers, directors and employees
of any of the foregoing (herein referred to as "Indemnitees") from and against
any and all loss, claims, damages, liabilities joint and several, expenses,
judgments, fines, settlements and other amounts arising from any and all claims
(including reasonable legal expenses), demands, actions, suits or proceedings
(civil, criminal, administrative or investigative) in which they may be
involved, as a party or otherwise, by reason of their management of, or
involvement in, the affairs of the Company, or rendering of advice or
consultation with respect thereto, or which relate to the Company, its
properties, business or affairs; provided in all cases that in connection
therewith the Indemnitee shall have met the standard of care described for
members of the Board of Directors in Section 7.4 hereof. Such indemnification
shall be to the fullest extent permitted by applicable law.
(b) Expenses (including attorneys' fees) incurred in defending any
proceeding under subsection (a) may be paid by the Company in advance of the
final disposition of such proceeding upon receipt of an undertaking by or on
behalf of the Indemnitee or Person to repay such amount if it shall ultimately
be determined that the Indemnitee or Person is not entitled to be indemnified by
the Company as authorized hereunder.
(c) The indemnification provided by this Section 11.1 shall not be
deemed to be exclusive of any other rights to which any person may be entitled
under any agreement, or as a matter of law, or otherwise, both as to action in a
person"s official capacity and to action in another capacity.
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(d) If directed by the Members, the Board of Directors shall purchase
and maintain insurance on behalf of itself, the Company, the Members, officers,
employees or agents of the Company and any other Indemnitees at the expense of
the Company, against any liability asserted against or incurred by them in any
such capacity whether or not the Company would have the power to indemnify such
Persons against such liability under the provisions of this Agreement.
11.2 LIMITATION OF LIABILITY. Notwithstanding anything to the contrary
herein contained, the debts, obligations and liabilities of the Company shall be
solely the debts, obligations and liabilities of the Company; and no Member
shall be obligated personally for any such debt, obligation or liability of the
Company solely be reason of being a Member of the Company, except if otherwise
provided by the Act.
11.3 INDEMNIFICATION REGARDING PRODUCTS ARISING FROM FUNDED PROJECTS.
Chiron agrees to indemnify, defend and hold the Company and Ciba harmless
from and against any and all claims, losses, damages, liabilities, costs and
expenses (including reasonable attorneys' fees) (collectively, "Claims") arising
as a result of Chiron's research and development activities which are funded
pursuant to this Agreement, or as a result of the manufacture, use or sale of
any product arising from a Funded Project, except to the extent that such Claims
result from (i) marketing, sale or promotion of the product by the Company,
Ciba, or their respective affiliates or licensees, in deviation from the
approved labeling for the product in question, or (ii) negligence or willful
misconduct of the Company, Ciba, or their respective employees, agents or
consultants. Ciba agrees to indemnify, defend and hold Chiron harmless from and
against Claims resulting from (i) or (ii) above.
The party seeking indemnification hereunder ("indemnified party") agrees to
notify the other party (the "indemnifying party") promptly after receipt of
notice of any Claim, and to cooperate with the indemnifying party in connection
with the investigation and defense of any Claim. The indemnifying party shall
have the right to control such defense, using counsel selected by the
indemnifying party, provided that the indemnified party shall have the right to
participate in such defense through its own counsel, at its sole expense. The
indemnifying party shall have the sole right to control the settlement or
disposition of any such Claim, provided that the indemnifying party shall not
settle or compromise any Claim in any manner which would materially adversely
impact the rights or activities of the indemnified party without prior written
consent of the indemnified party, as the case may be, which consent shall not be
unreasonably withheld.
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ARTICLE XII
CONFIDENTIALITY
12.1 During the term of this Agreement and for a period of five (5) years
following the expiration or termination of this Agreement, the Company and Ciba
agree to maintain in confidence all confidential or proprietary information of
Chiron ("Confidential Information") which is disclosed to the Company or Ciba
pursuant to this Agreement. The Company and Ciba shall use such Confidential
Information only as permitted by this Agreement and shall not disclose the same
to anyone other than its employees, agents or consultants, as are necessary for
the purposes of this Agreement. Any such disclosure shall be on terms and
conditions at least as restrictive as those contained herein.
12.2 The foregoing obligation of confidentiality shall not apply to the
extent that (a) the Company and Ciba are required to disclose information by
law, order or regulation of a governmental agency or a court of competent
jurisdiction, and provides Chiron with reasonable notice prior to such
disclosure, and cooperates with Chiron in seeking such protection for such
disclosed information as Chiron may determine; or (b) the Company or Ciba can
demonstrate that: (i) the information was at the time of receipt already in
the public domain or thereafter entered the public domain other than as a result
of actions of the Company, Ciba, or any of their respective employees,
consultants, or agents, in violation hereof; (ii) the information was rightfully
known by the Company and Ciba prior to the date of receipt hereunder; or (iii)
the information was disclosed to the Company or Ciba by a third party source
not under a duty of confidentiality to Chiron; or (iv) the information was
independently developed by the Company or Ciba by employees, agents or
consultants who had no access to the Confidential Information.
ARTICLE XIII
TERMINATION
13.1 TERMINATION. The Company shall be dissolved, its assets disposed of
and its affairs wound up upon the first to occur of the following:
(a) upon the expiration of the 20-year period commencing with the
date of this Agreement;
(b) upon the agreement of Members holding at least 98% of all
Membership Interest; or
(c) upon the entry of a decree of judicial dissolution under the Act.
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13.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall cease
carrying on, as distinguished from winding up, its business, but the Company is
not terminated, and continues until the winding up of the affairs of the Company
is completed and a Certificate of Cancellation has been filed with the Delaware
Secretary of State.
13.3 WINDING UP AND CERTIFICATE OF CANCELLATION. The winding up of the
Company shall be completed when all debts, liabilities and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made, and all of the remaining property and assets of the Company have
been distributed to the Members. Upon the completion of winding up of the
Company, a Certificate of Cancellation shall be filed with the Delaware
Secretary of State.
13.4 DISTRIBUTION OF ASSETS. Upon dissolution and winding up of the
Company, the affairs of the Company shall be wound up and the Company liquidated
by the Board of Directors. The assets of the Company shall be distributed as
follows in accordance with the Act:
(a) to creditors of the Company in the order of priority provided by
law;
(b) to Members for any amounts the Company owes them, other than in
respect of their interest in the Company capital and profits; and
(c) to the Members in accordance with Article X.
ARTICLE XIV
ACTION BY CIBA MEMBERS OF CHIRON BOARD
Ciba agrees that the members of the Chiron Board of Directors which
are designated by Ciba pursuant to that certain Governance Agreement dated as of
November 20, 1994, shall refrain from voting, or otherwise acting to direct or
control Chiron, with respect to any matter relating to the Funded Projects,
Chiron's ownership of Membership Interest in the Company, or Chiron's exercise
of its rights to repurchase Membership Interest in the Company hereunder.
ARTICLE XV
MISCELLANEOUS
15.1 OBLIGATIONS UNDER OTHER AGREEMENTS. The promotional and marketing
options hereunder are in lieu of the application of Sections 3.02 and 4.02 of
that certain Cooperation and Collaboration Agreement between Chiron and Ciba
dated as of November 20, 1994, with respect to all products arising from the
Funded Projects. All obligations in such Sections are suspended
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during the term of this Agreement, the Royalty Agreement and any co-promotion or
marketing agreements hereunder with respect to the products covered hereby and
thereby.
15.2 ASSIGNMENT. Neither party shall have the right to assign any of its
rights or obligations hereunder to any unaffiliated third party without the
prior written consent of the other party hereto, which consent shall not be
unreasonably withheld. Subject to the foregoing, this Agreement shall be
binding on, and inure to the benefit of, the parties, their successors and
permitted assigns.
15.3 SEVERABILITY. If any provision of this Agreement should be held
invalid or unenforceable, the remaining provisions hereof shall be unaffected
and shall remain in full force and effect without regard to such invalid or
unenforceable provisions, provided that such remainder is consistent with the
intent of the parties as evidenced by this Agreement as a whole.
15.4 AMENDMENT. This Agreement may not be modified or amended except in
writing signed by all Members.
15.5 ENTIRE AGREEMENT. This Agreement and the Amended and Restated
Royalty Agreement represent the entire agreement of the parties with respect to
the subject matter hereof, and supersedes all prior negotiations and agreements,
including without limitation Exhibit B to the 1994 Investment Agreement, and the
Investment, Research Support and Marketing Agreement originally executed as of
September 29, 1995 together with the Royalty Agreement which constituted
Schedule 1.03 thereto and all other exhibits and schedules thereto.
15.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Company Agreement
as of the day and year first above written.
MEMBERS:
CHIRON CORPORATION
By: William Rutter
---------------
Title: Chairman
---------
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CHIRON BIOCINE COMPANY
By: William Green
-------------
Title: Secretary
---------
BIOCINE S.p.A.
By: William Rutter William Green
-------------- -------------
Title: Director Director
-------- --------
CIBA-GEIGY CORPORATION
By: John McGraw
------------
John McGraw
Title: Vice President
Exhibits: A Initial Membership Interests of Chiron and its Affiliates
B Royalty Agreement
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EXHIBIT A
INITIAL MEMBERSHIP INTERESTS OF CHIRON AND ITS AFFILIATES
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
Exhibit B
ROYALTY AGREEMENT
This Amended and Restated Royalty Agreement is made effective as of
December 28, 1995, by and between Chiron Corporation ("Chiron"), a Delaware
corporation, Chiron Biocine Company and Biocine S.p.A., both wholly owned
Affiliates of Chiron, and Chiron Funding L.L.C., a Delaware Limited Liability
Company (the "Company"), and replaces and supersedes in full that certain
Royalty Agreement previously entered into by and among Chiron and Chiron Funding
Corporation as of September 29, 1995.
RECITALS.
Chiron and its Affiliates and Ciba-Geigy Corporation ("Ciba"), a New York
corporation, have entered into a Limited Liability Company Agreement of even
date herewith (the "LLC Agreement"), with respect to the formation and operation
of the Company. The parties wish to set forth the terms under which Chiron will
pay to the Company royalties on certain products arising from the Funded
Projects, which products are identified on Schedule A hereto (the "Products"),
as contemplated in Section 2.1.1(b) of the LLC Agreement.
AGREEMENTS.
All capitalized terms not defined in this Agreement shall have the meanings set
forth in the LLC Agreement.
1. ROYALTIES
1.01 OBLIGATION TO PAY ROYALTIES. In consideration of the Membership
Interests in the Company issued to Chiron and its Affiliates pursuant to
Section 2.1.1 of the LLC Agreement, and subject to the terms and conditions
set forth herein, Chiron and its Affiliates hereby agree to pay to the
Company royalties on the Products during the Royalty Term set forth in
Section 3. Such royalties for each Product shall be a percentage of
worldwide Net Sales, as defined below, calculated as follows.
1.02 BASE ROYALTY RATE FOR BASE NET SALES AMOUNT. If total annualized
worldwide Net Sales for all Products during a given year within the Royalty
Term are less than or equal to the amounts shown on Schedule B hereto, the
royalty rate shall be [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales
(the "Base Royalty Rate").
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1.03 ROYALTY RATE FOR NET SALES IN EXCESS OF BASE NET SALES AMOUNT. In
the event that annualized Net Sales of all Products during any year of the
Royalty Term exceed the amounts set forth in Schedule B, the Base Royalty
Rate shall be reduced ratably, up to a maximum reduction of [CONFIDENTIAL
TREATMENT REQUESTED] in the event that annualized Net Sales are greater
than or equal to [CONFIDENTIAL TREATMENT REQUESTED] of the amounts shown
in Schedule B. For annualized Net Sales amounts between those set forth on
Schedule B and [CONFIDENTIAL TREATMENT REQUESTED] of such amounts, the Base
Royalty Rate shall be reduced based on the following formula:
Royalty Rate = [CONFIDENTIAL TREATMENT REQUESTED]
For example, if actual annualized Net Sales in 2002 were greater than or
equal to U.S. $2,022,000,000, the Royalty Rate would be
[CONFIDENTIAL TREATMENT REQUESTED]
However, if actual annualized Net Sales in 2002 were U.S.$1,617,600,000,
the Royalty Rate would be
[CONFIDENTIAL TREATMENT REQUESTED]
1.04 ADJUSTMENT FOR LACK OF PATENT PROTECTION. All royalties payable
hereunder shall be reduced by [CONFIDENTIAL TREATMENT REQUESTED] with
respect to Net Sales in any country in which the sale of the Product in
question is not covered by any patents or patent applications held by
Chiron or its Affiliates, whether due to the lack of patent applications,
adjudicated invalidity of patents, or expiration of patents prior to the
end of the royalty term.
1.05 "AFFILIATES." As used herein, Affiliates of Chiron shall include all
entities controlled by Chiron, but shall not include the Company and shall
not include Ciba or any entity controlled by or under common control with
Ciba which is not also controlled by Chiron. Affiliates of Chiron
specifically include Chiron Biocine Company and Biocine S.p.A.
22. NET SALES. As used herein, "Net Sales" means the invoiced price of a
product sold by Chiron, its Affiliates or licensees, less (i) discounts,
rebates, chargebacks and allowances; (ii) credits or refunds for returned or
damaged goods; (iii) sales, use, excise, value added and similar taxes; (iv)
customs, export and import duties and other governmental charges; (v)
transportation and insurance charges; (vi) royalties payable to third parties;
(vii) costs incurred by Chiron, including amounts payable in damages or
settlement, in defending claims by third parties that the products infringe
third party intellectual property rights.
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In the event that a Product is sold in combination with another active
ingredient, or with a delivery system not developed as part of the Product, or
with instrumentation, or with other components in a kit, or with services
related to the use of the product (all collectively referred to as "Other
Components", and the resulting product referred to as a "Combination Product"),
the parties shall reasonably determine the portion of Net Sales of the
Combination Product which should be allocated to the Product. If the Product
and the Other Components are sold separately, the Net Sales for the purpose of
this Agreement shall be determined by multiplying the gross invoiced price of
the Combination Product, less the deductions specified above, by a the fraction
[CONFIDENTIAL TREATMENT REQUESTED], where [CONFIDENTIAL TREATMENT REQUESTED].
If no such separate sales are made, the appropriate allocation shall be
negotiated in good faith by the parties.
3. ROYALTY TERM. Royalties shall be payable hereunder with respect to Net
Sales of Products occurring on or after October 1, 2001. Royalties shall
continue to be payable, on a Product by Product basis, with respect to Net Sales
occurring within ten years from the later of October 1, 2001 or the date of
first commercial sale of the Product in question. If, at the end of the
Royalty Term, Ciba has not received, through its share of royalties paid to the
Company hereunder and its share of co-promotion profits pursuant to Section
2.11(c) of the LLC Agreement, an aggregate amount equal to the sum of all Unit
purchase payments made by Ciba pursuant to Section 2.3 of the LLC Agreement plus
interest thereon from the date of such payments at a rate equal to LIBOR, as
defined in Section 4.1 of the LLC Agreement, then the Royalty Term shall be
extended until such time as Ciba has received such aggregate amount.
4. ROYALTY PAYMENTS AND REPORTS
4.01. PAYMENTS. All royalties payable to the Company hereunder shall be
paid in U.S. Dollars, on a quarterly basis within ninety (90) days
following the close of Chiron's fiscal quarter, with respect to Net Sales
of Products during such fiscal quarter.
4.02. REPORTS. Each royalty payment shall be accompanied by a written
report setting forth in reasonable detail the Net Sales of Products by
Chiron, its affiliates and licensees during the applicable period and the
resulting calculation of the royalty payment due hereunder. For the
purposes of determining royalties hereunder, Net Sales shall be calculated
in the currency of the country of sale and then converted to U.S. Dollars
in accordance with Chiron's standard accounting practices.
4.03. TAXES. If law or regulation requires withholding of any taxes on
payments with respect to Net Sales in any given country to Chiron, its
affiliates or licensees, or on payments due to the Company hereunder, such
taxes will be deducted on a country-by-country basis from such remittable
payment, and the amounts due to
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the Company hereunder shall be remitted net of such withheld taxes. Chiron
shall provide the Company with documentation of any such withholding or
other taxes paid hereunder with respect to tax liability of the Company.
4.04. BLOCKED CURRENCY. If, in any country, the transfer of payment to
Chiron, its Affiliates or sublicensees with respect to Net Sales, or the
transfer of royalties to the Company hereunder, is prohibited by law or
regulation, the payment obligations to the Company hereunder with respect
to the amounts so restricted shall be fully satisfied upon payment of the
amounts due to the Company in local currency to a bank account in the
Company's name in such country. The parties agree to cooperate in their
efforts to resolve any such blocked currency situation.
5. AUDIT RIGHTS. Chiron and its Affiliates agree to keep accurate books and
records of the sales of all Products. The Company and Ciba shall have the
right, at Ciba's expense, for a period of three (3) years after each report
delivered pursuant to Section 4.02 to have an independent certified public
accountant ("CPA") reasonably acceptable to Chiron examine the relevant books
and records Chiron and its Affiliates, during normal business hours, at the
principal offices of Chiron or the Affiliate in question, upon two (2) weeks
advance written request, to verify the calculation of any royalty payment;
provided, however, that such audits shall not occur more than once per year.
Said CPA shall be under confidentiality obligations to Chiron and its
Affiliates, to reveal only whether there is an error in the calculation of a
royalty payment owed hereunder, and if so, the amount of such error.
6. ENTIRE AGREEMENT. This Agreement, including any schedules and exhibits
hereto, constitutes the entire agreement of the parties with respect to the
subject matter hereof, and supersedes all prior agreements, negotiations and
understandings. Without limiting the foregoing, this Agreement supersedes and
replaces in full that certain Royalty Agreement by and between Chiron and Chiron
Funding Corporation dated as of September 29, 1995.
4
<PAGE>
Executed by the parties as of the date first written above.
CHIRON CORPORATION CHIRON FUNDING L.L.C.
By By
---------------------- ------------------------
Title Title
------------------- ---------------------
CHIRON BIOCINE COMPANY BIOCINE S.P.A.
By By
---------------------- ------------------------
Title Title
------------------- ---------------------
Schedules: A Products
B Base Net Sales
5
<PAGE>
SCHEDULE A
PRODUCTS ARISING FROM FUNDED PROJECTS
WHICH ARE SUBJECT TO ROYALTIES
ADULT VACCINES
THE FOLLOWING SUBUNIT PROTEIN BASED VACCINES (DNA AND NUCLEOTIDE VACCINES ARE
EXCLUDED):
Herpes Simplex Virus Vaccine (prophylactic and therapeutic use)
Hepatitis C Virus Vaccine (prophylactic and therapeutic use)
Cytomegalovirus Vaccine
Adjuvanted Hepatitis B Vaccine
Human Papilloma Virus Vaccine
Human Immunodeficiency Virus Vaccine
PEDIATRIC VACCINES
THE FOLLOWING SUBUNIT PROTEIN BASED OR TRADITIONAL VACCINES (DNA AND NUCLEOTIDE
VACCINES ARE EXCLUDED):
Acellular Pertussis - Diphtheria - Tetanus Vaccine (aPDT) (but not acellular
pertussis, diphtheria or tetanus vaccines sold separately)
Meningococcus C Vaccine (Men C)
Haemophilus Influenza Vaccine (Hib)
Combinations of two or more of aPDT, Men C and Hib
OTHER
Insulin-like Growth Factor 1
6
<PAGE>
SCHEDULE B
TOTAL NET SALES ON ALL PRODUCTS BY YEAR
(BASE NET SALES)
MILLIONS OF U.S. DOLLARS
<TABLE>
<S> <C>
Q4 2001 $ [CONFIDENTIAL TREATMENT REQUESTED]
2002 $ [CONFIDENTIAL TREATMENT REQUESTED]
2003 $ [CONFIDENTIAL TREATMENT REQUESTED]
2004 $ [CONFIDENTIAL TREATMENT REQUESTED]
2005 $ [CONFIDENTIAL TREATMENT REQUESTED]
2006 $ [CONFIDENTIAL TREATMENT REQUESTED]
2007 $ [CONFIDENTIAL TREATMENT REQUESTED]
2008 $ [CONFIDENTIAL TREATMENT REQUESTED]
2009 $ [CONFIDENTIAL TREATMENT REQUESTED]
2010 $ [CONFIDENTIAL TREATMENT REQUESTED]
2011 $ [CONFIDENTIAL TREATMENT REQUESTED]
</TABLE>
7
<PAGE>
Exhibit 10.81
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
THIS AGREEMENT is made this 15th day of November, 1995
between
CIBA-GEIGY LIMITED
of Klybeckstrasse 141, 4002 Basel, Switzerland,
(hereinafter referred to as "Ciba")
and
CHIRON CORPORATION
of 4560 Horton Street, Emeryville, California 94608, USA,
(hereinafter referred to as "Chiron")
INTRODUCTION
A. Chiron and its affiliates have accumulated considerable experience and
technology in the Technology Transfer Field, as defined below.
B. Ciba wishes to gain access to Chiron's technology within the Technology
Transfer Field and to use it for the purpose of identifying or discovering
drugs, as well as identifying or discovering compounds suitable for use in
areas other than pharmaceuticals in which Ciba is or becomes active.
C. Chiron is willing to provide Ciba with access to technology within the
Technology Transfer Field, and any improvements it makes thereto during a
specified period following the date of this Agreement. Both Ciba and
Chiron are willing to collaborate in a research and development program
aimed at the enhancement of such technology, it being the intention of the
parties that Ciba will be free to use such transferred technology and such
improvements during and after the term of this Agreement, subject to the
terms set forth herein.
D. In addition, Chiron has considerable experience and expertise in utilizing
the technology within the Technology Transfer Field to design and
synthesize combinatorial libraries and in applying these technologies to
the discovery and development of pharmaceutical products. The parties
intend to collaborate with a view to the ultimate discovery and
development of new drugs for the targets which are selected as provided
below.
<PAGE>
-2-
E. This Agreement represents the technology transfer and research and
development collaboration between the parties which is contemplated in
Section 2.05 of that certain Cooperation and Collaboration Agreement dated
as of November 20, 1994 (the "Cooperation Agreement").
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
1.1 "AFFILIATE" means in the case of each party any entity that directly or
indirectly controls, is controlled by, or is under common control with that
party. For such purpose the term "control" means ownership or control of at
least 50% of the voting interest in the entity in question. Chiron, Ciba and
their respective Affiliates shall not be considered Affiliates of each other for
the purposes of this Agreement, regardless of the percentage ownership interest
which Ciba may hold in Chiron.
1.2 "CHIRON LICENSED TECHNOLOGY" means all inventions, know-how, trade secrets,
and other proprietary information (whether patented or not), which are owned by
Chiron or its current Affiliates, or their respective employees or assignors, as
of the date of execution of this Agreement: (i) which are within the Technology
Transfer Field as the same is defined as at the date of execution of this
Agreement, or as the same may be redefined during the five years following such
date pursuant to Section 1.30; (ii) as to which Chiron has the right to grant to
Ciba a license hereunder, subject to Section 3.2.2; and (iii) which Ciba elects
to license pursuant to Section 3.1.2.
1.3 "CHIRON LICENSED TECHNOLOGY IMPROVEMENTS" means inventions, know-how,
trade secrets and proprietary information (whether patented or not) within the
Technology Transfer Field, which are invented or developed by Chiron or its
Affiliates, or their respective employees or assignors, subject to Section 1.30,
within five (5) years after the date of this Agreement, with the right to
license to Ciba hereunder, all subject to Section 3.2.2.
1.4 "CHIRON LICENSED TECHNOLOGY PATENTS" means all patents and patent
applications (including provisionals, divisionals, continuations, continuations
in part, reissues, re-examinations, substitutions, additions and any extensions
to such patents) claiming Chiron Licensed Technology or Chiron Licensed
Technology Improvements made within the period referenced in Section 1.3.
1.5 "CHIRON PRODUCT" means a product developed and commercialized by Chiron
pursuant to Section 4.3.
1.6 "CIBA LICENSED TECHNOLOGY" means all inventions, know-how, trade secrets,
and other proprietary information (whether patented or not), which are owned by
Ciba or its current Affiliates, or their respective employees or assignors, as
of the date of execution of this Agreement: (i) which are within the Technology
Transfer Field as the same is defined as at the date of execution
<PAGE>
-3-
of this Agreement, or as the same may be redefined during the five years
following such date pursuant to Section 1.30; and (ii) as to which Ciba has the
right to grant to Chiron a license hereunder, subject to Section 3.2.2.
1.7 "CIBA LICENSED TECHNOLOGY IMPROVEMENTS" means inventions, know-how, trade
secrets and proprietary information (whether patented or not) within the
Technology Transfer Field, which are invented or developed by Ciba or its
Affiliates, or their respective employees or assignors, subject to Section 1.30,
within five (5) years after the date of this Agreement, with the right to
license to Chiron hereunder, all subject to Section 3.2.2.
1.8 "CIBA LICENSED TECHNOLOGY PATENTS" means all patents and patent
applications (including provisionals, divisionals, continuations, continuations
in part, reissues, re-examinations, substitutions, additions and any extensions
to such patents) claiming Ciba Licensed Technology or Ciba Licensed Technology
Improvements made within the period referenced in Section 1.7.
1.9 "CIBA PRODUCT" means a product developed and commercialized by Ciba
pursuant to Section 4.3.
1.10 "COMBINATORIAL LIBRARY" means a library or mixture of compounds, including
the compounds contained or proposed to be contained therein, produced using
Combinatorial Technology.
"CHIRON COMBINATORIAL LIBRARY" means a Combinatorial Library designed
and/or synthesized or acquired by Chiron (alone or with third parties and
available for sublicense to Ciba under the terms and conditions of this
Agreement) prior to the execution date hereof or during the term of the
Target Collaboration.
"CIBA COMBINATORIAL LIBRARY" means a Combinatorial Library designed and/or
synthesized or acquired by Ciba (alone or with third parties) without
the assistance of or involvement of Chiron in the design or synthesis
of such library; provided that the mere use by Ciba of Chiron Licensed
Technology shall not be considered assistance or involvement of Chiron
for the purpose of this definition.
"JOINT COMBINATORIAL LIBRARY" means a Combinatorial Library, as to which
Ciba and Chiron each perform inventive or creative acts in designing the
library, and/or contribute proprietary components or compositions to the
library.
1.11 "COMBINATORIAL TECHNOLOGY" means methods and materials for the production,
design, synthesis, characterization and/or use of synthetic, non-peptide
chemical libraries, either as individual compounds or mixtures thereof, using
combination and/or permutation strategies with respect to the structural
components, e.g. organic scaffold or polymeric or oligomeric backbone structures
and chemistries, together with sidechain or substituent chemistries; such
libraries generated using
<PAGE>
-4-
chemical strategies based on (i) solid-phase or solid supported systems, e.g.
resins and/or supported spatial arrays (e.g. pins), or (ii) solution chemistry.
1.12 "COMPOUND HIT" means a singular molecular entity identified as having
biological activity at a level to be agreed upon by the parties, which would
typically be a 50% effect (estimated ED(50)) at less than or equal to 100
nanomolar, which identification results from the screening of Combinatorial
Libraries pursuant to the Target Collaboration.
1.13 "COMPOUND PATENT" means a patent or patent application claiming an
invention or discovery made pursuant to the Target Collaboration, which is
specific to a lead compound and a genus of compounds reasonably expected to have
the same or similar activity. Patentability of a Compound Patent is premised on
the activity of the lead compound(s). A Compound Patent may include claims to
the compounds per se, methods of making the compounds, methods of using the
compounds, formulations and the like, as appropriate.
1.14 "EDC" means a compound directed against a Selected Target which has
undergone extensive preclinical animal studies, formulation and production work,
and is identified as suitable to be prepared for tolerability studies in human
volunteers by the appropriate TARB of Ciba or the equivalent body of Chiron.
1.15 "FTE" means the full time equivalent effort, for one year, of one person
who participates directly in the technology transfer or the research and
development activities contemplated under this Agreement, on behalf of one of
the parties hereto. Chiron will use its standard cost accounting procedure in
determining FTE support and will fairly allocate costs among its various
programs. Such participation includes, without limitation, production of
chemical, biological and/or other materials or reagents provided for use under
this Agreement (and the resupply thereof if shelf stock is provided, as
reasonably determined by Chiron).
1.16 "JOINT PRODUCT" means a product developed and commercialized by Ciba and
Chiron under a co-development arrangement pursuant to Section 4.3.
1.17 "LIBRARY PATENT" means a patent or patent application claiming an invention
or discovery which is specific to a group of compounds related by structure but
not necessarily activity (i.e., a library). A Library Patent will include
claims to the library as a composition, and or methods for making and using a
library as appropriate. Patentability of a Library Patent is premised on the
use of the library to find active compounds for one or more targets. A Library
Patent may disclose and claim one or more compounds identified from the library
(including compositions and methods of making and using) without being
considered a Compound Patent.
1.18 "NET SALES" means the total revenue from commercial sales received by a
party hereto, its Affiliates and/or licensees from the sale of a product subject
to royalties hereunder ("Royalty Bearing Product") to independent third parties
less the following amounts : (i) discounts, including
<PAGE>
-5-
cash discounts, trade allowances or rebates actually allowed or granted, (ii)
credits or allowances actually granted upon claims or returns, regardless of the
party requesting the return, (iii) separately itemized freight charges paid for
delivery and (iv) taxes or other governmental charges levied on or measured by
the invoiced amount, whether absorbed by the billing party or the billed party.
In the event that the Royalty Bearing Product is sold in the form of a
combination product or kit containing one or more active ingredient components
or a delivery system ("Combination Product") then the Net Sales for such
Combination Product will be calculated by multiplying actual Net Sales of such
Combination by the fraction A/(A+B) where A is the fair market price of the
Royalty Bearing Product if such were sold separately as the only active
ingredient therein and B is the fair market price of additional active
ingredient components. If the Royalty Bearing Product and other active
components are not sold separately, or if a delivery system is an integral part
of the Combination Product and adds significant value, the parties will in good
faith negotiate a formula to determine the amount of Net Sales to which the
royalty will be applicable, which formula will reflect the Royalty Bearing
Product's and/or delivery system's contribution to the Combination Product.
1.19 "RESEARCH COMPOUND" means a compound directed at a Selected Target and
identified as a potential candidate for Early Compound Evaluation by Ciba's
Therapeutic/Indication Area Management, or by the equivalent body at Chiron,
based on such criteria as completion of screening in primary, selectivity and
cellular assays, and preliminary IN VIVO pharmacology studies.
1.20 "RESTRICTED TARGET" means a Target in relation to which, because of
pre-existing commitments of Chiron to third parties, Chiron is not permitted to
grant Ciba a license to use the Chiron Licensed Technology or the Chiron
Licensed Technology Improvements transferred to Ciba hereunder for the purpose
of research and development with respect to pharmaceuticals for human use. A
list of Restricted Targets is attached hereto as Exhibit D, which shall be
amended from time to time by eliminating one or more Restricted Targets, in the
event that such pre-existing commitments by Chiron to third parties are
terminated as to any such Targets.
1.21 "SCIENCE COMMITTEE" means the Science Committee created pursuant to
the Cooperation Agreement.
1.22 "SELECTED TARGET" means a Target selected pursuant to Section 4.1.1 to be
the subject of the Target Collaboration, or a Target selected for addition to
the Target Collaboration pursuant to Section 4.2.5 or 4.2.6.
1.23 "STEERING COMMITTEE" means the committee to be established pursuant to
Article 2 hereof.
1.24 "TARB" means a Therapeutic Area Review Board of Ciba.
<PAGE>
-6-
1.25 "TARGET" means one molecular entity, such as, but not limited to, a
receptor or an enzyme, together with its subtypes or isozymes, based on
scientific knowledge as it exists at the time of target selection. The parties
will mutually agree on the precise definition of any Target at the time it is
selected as a Selected Target hereunder.
For clarity of understanding, and by way of example rather than limitation:
[CONFIDENTIAL TREATMENT REQUESTED]
1.26 "TARGET COLLABORATION" means the research and development program conducted
by the parties pursuant to Article 4 of this Agreement.
1.27 "TARGET COLLABORATION FIELD" means the discovery, optimization and
development of small molecule compounds directed against a Selected Target for
human therapeutic use. The Target Collaboration Field specifically excludes
vaccines; diagnostics and therapeutic monitoring tests; antisense, aptamers and
related anti-gene therapies; and gene transfer technology.
1.28 "TARGET PROJECT TEAM" means a team to be established for the purposes of
the Target Collaboration pursuant to Section 4.2.2 hereof.
1.29 "TECHNOLOGY IMPROVEMENT COLLABORATION" means the research and development
program conducted by the parties for the purpose of developing improvements
within the Technology Transfer Field pursuant to Section 3.3.
1.30 "TECHNOLOGY TRANSFER FIELD" means solid-phase or solid supported organic
chemistry and related Combinatorial Technology based techniques for drug
discovery and optimization in preclinical research and development, for use in
the research and development of pharmaceuticals for human use or research and
development of other products (e.g. agricultural products), and including but
not limited to the following, all as applied to Combinatorial Technology: (i)
pins and/or resins, particularly the optimization of solid phases, grafted
surfaces and linkers, i.e., extending from the inert substrate to and including
the reactive moiety of the linker(s); (ii) methods and procedures for use
thereof, i.e., for performing solid-phase organic chemistry thereon, including
conditions for performing organic reactions generally and/or certain types or
classes of organic reactions specifically (e.g., solvent(s), temperature,
catalyst(s) and the like); (iii) formats, e.g., multipin systems or other
spatially addressable arrays, including automation software therefor, and
robotics technology for compound synthesis, including automation software
therefor; (iv) analytics to monitor the preceding; (v) computational chemistry,
including molecular modeling, diversity modeling and data handling techniques
for creating and maintaining data bases, and informatics; (vi) assay methods,
including robotics technology (with automation software therefor) and affinity
selection-mass spectrometry; and (vii) in vitro and in vivo test systems for
assessment of safety,
<PAGE>
-7-
efficacy and pharmacokinetics (including ADME characteristics). Notwithstanding
the foregoing, the Technology Transfer Field specifically excludes (a) peptides
and biological molecules; (b) all existing and future Chiron Combinatorial
Libraries and compounds contained therein; (c) Chiron information relating to,
or Chiron participation in, the application of any of the foregoing techniques
to the design, synthesis and/or characterization of specific compound sets or
libraries or individual compounds or materials, or the use or application
thereof; (d) medicinal chemistry; (e) specific assays and/or targets; and (f)
all biological and chemical results and data, including existing and future
Chiron databases.
The parties recognize that the definition of the Technology Transfer Field may
evolve over the five years following the date of this Agreement. The precise
extent of the definition of the Technology Transfer Field in the future, and the
decision of whether any particular invention or technology of either party is
Chiron Licensed Technology or a Chiron Licensed Technology Improvement, on the
one hand, or Ciba Licensed Technology or a Ciba Licensed Technology Improvement,
on the other hand, will be based on the following principles:
1. The Chiron technology which is within the Technology Transfer Field as
of the date of this Agreement is described in Exhibit B.
2. In the absence of agreement to the contrary, neither the Technology
Transfer Field nor the licenses granted under Sections 3.5.1 or
3.5.2 shall be deemed to cover, or allow either party access to
the other party's technology other than Combinatorial Technology
based research and development techniques.
3. On the other hand, both parties intend that the licenses granted under
Sections 3.5.1 and 3.5.2 will provide each party with access to
technologies of the other party (the "licensor") which both (i)
become a routine part of the licensor's Combinatorial Technology
based research and development techniques, such routine use not
to be artificially delayed, and (ii) the Steering Committee
determines are necessary or important to maintain the
Combinatorial Technology program of the licensor at the state of
the art.
1.31 "THIRD PARTY EXCLUDED TARGETS" means, for the purposes of Article 4 only,
all Targets for which, as of the time of any relevant decision hereunder
relating to Third Party Excluded Targets, Chiron has an obligation to a third
party, as further described below. Initially, the Third Party Excluded Targets
shall be those Targets identified in Exhibit A. Chiron shall have the right, at
any time, immediately on written notice to Ciba, to amend Exhibit A by adding as
additional Third Party Excluded Targets those Targets as to which Chiron (i) has
granted rights to any third party; or (ii) is engaged in active negotiations
with a third party which have resulted in an agreed upon term sheet. Targets to
which the foregoing criteria no longer apply shall be deleted.
<PAGE>
-8-
1.32 "TRANSFER PROJECT TEAM" means a project team to be established pursuant to
Section 3.1.4 hereof.
2 STEERING COMMITTEE
2.1 The parties will establish a Steering Committee for the purposes of
supervising the Technology Transfer, implementation of the technology
development plans and resolving any conflicts arising in the course of
the development and the Target Collaboration. The Steering Committee
shall have such even number of members as the parties shall agree, half
of the members being appointed by each party, with each of Chiron and
Ciba having one vote. In the event of deadlock on any issue, such issue
shall be referred for decision to the Science Committee.
2.2 The Steering Committee shall monitor the progress of the Technology
Transfer, technology development plans and the Target Collaboration on a
regular basis and shall have the power to alter the Technology Transfer
timetable, technology development plans and the Target Collaboration as
necessary from time to time. The Steering Committee shall meet not less
than twice per year, and the location of such meetings shall alternate
between Emeryville and Basel, all unless otherwise agreed by the parties.
3 TECHNOLOGY TRANSFER ARRANGEMENTS
3.1 TRANSFER OF TECHNOLOGY
3.1.1 Attached hereto as Exhibit B is a summary description of the
technology owned by Chiron within the Technology Transfer Field as of the
date of this Agreement.
3.1.2 Ciba will notify Chiron as soon as practicable which of such
technology it wishes to license. It is acknowledged and agreed that each
such notification need not be comprehensive, and that Ciba may call for
additional technology it wishes to license from Chiron by serving notice
on Chiron specifying the additional technology required at any time
during the five years following execution of this Agreement. (The
information specified in such notices shall determine which technology
within the Technology Transfer Field will be Chiron Licensed Technology
hereunder). As soon as practicable after the first notification the
parties will agree to a timetable for the transfer of sufficient
information and instruction to Ciba to enable it to practice the Chiron
Licensed Technology and the manner in which such information is to be
transferred (i.e., visits by Chiron personnel to Ciba's premises or vice
versa).
<PAGE>
-9-
The goal of the parties is to cause Ciba to be fully informed and able to
practice the Chiron Licensed Technology not later than [CONFIDENTIAL
TREATMENT REQUESTED] from the date on which the relevant Chiron
Licensed Technology was first identified by Ciba and notified to Chiron.
Chiron agrees to devote the FTE effort required pursuant to Section 3.1.5
to the accomplishment of such goal and the goal regarding installation of
equipment during such period, as set forth in Section 3.1.3.
3.1.3 Chiron will supply Ciba with a list of the equipment which in Chiron's
view will be required by Ciba to enable Ciba to practice the Chiron
Licensed Technology and to conduct Ciba's activities pursuant to the
Technology Improvement Collaboration and the Target Collaboration. Ciba
will be responsible for obtaining all equipment, and for the assembly and
installation of such equipment as is purchased. To the extent that any
such equipment has to be specially manufactured, Chiron will at Ciba's
expense either manufacture the same and sell it to Ciba at [CONFIDENTIAL
TREATMENT REQUESTED], or will procure its manufacture for Ciba by a third
party on terms to be agreed in advance with Ciba.
Within the limitations of the FTE commitment pursuant to Section 3.1.5,
Chiron will send suitably qualified and experienced employees to
Ciba's premises to assist Ciba in the installation of the equipment.
Chiron will also provide training for an agreed number of Ciba employees
in the use of the equipment.
Subject, in the case of Chiron, to the limitations of the FTE commitment
pursuant to Section 3.1.5, Chiron and Ciba both agree to use reasonable
commercial efforts to have the equipment installed and operational at
Ciba's premises not later than [CONFIDENTIAL TREATMENT REQUESTED] from
the date on which Chiron Licensed Technology is first identified pursuant
to Section 3.1.2, with a target of [CONFIDENTIAL TREATMENT REQUESTED]
following such date.
3.1.4 To facilitate the transfer of information regarding the Chiron
Licensed Technology pursuant to this Section 3.1, a project team ("the
Transfer Project Team") will be formed if either party so requests. The
members of the Transfer Project Team shall be selected on the basis of
their experience and suitability having regard to the nature of the
information to be transferred.
<PAGE>
-10-
3.1.5 To assist in the transfer of information regarding the Chiron Licensed
Technology pursuant to this Section 3.1, unless otherwise agreed in
writing, Chiron shall make available the services of [CONFIDENTIAL
TREATMENT REQUESTED] FTEs (being suitably qualified and experienced) in
each of the first and second years after execution of this Agreement and
[CONFIDENTIAL TREATMENT REQUESTED] FTEs in each of the third, fourth and
fifth years after execution of this Agreement, the cumulative number of
FTEs being not less than [CONFIDENTIAL TREATMENT REQUESTED] nor more than
[CONFIDENTIAL TREATMENT REQUESTED] over the 5 years. The actual FTE
commitment, within such ranges, shall be mutually determined by the
parties from time to time. Any balance of such FTE's not used in
connection with technology transfer may be used in the Target
Collaboration (without affecting the FTE commitments set forth in
Section 4.2.4) or in the Technology Improvement Collaboration, at Ciba's
election.
Ciba shall pay Chiron's fully-burdened cost of the provision of the FTEs
provided pursuant to this Section 3.1.5. The initial rate shall be U.S.
[CONFIDENTIAL TREATMENT REQUESTED] per FTE per year, this amount to be
increased annually, effective January 1 of each calendar year, based on
increases in the [CONFIDENTIAL TREATMENT REQUESTED] for the previous
calendar year. This payment compensates Chiron for all ordinary travel
and subsistence expenses incurred by such FTE's, but excludes expenses of
extraordinary travel or exceptionally long stays, which shall be
separately reimbursed in amounts to be mutually agreed upon by the
parties. For the purposes of this Section 3.1.5, travel which exceeds (i)
travel necessary to attend meetings of the Transfer Project Team and/or
Steering Committee, plus (ii) [CONFIDENTIAL TREATMENT REQUESTED] days per
year per FTE, shall be considered extraordinary travel or exceptionally
long stays.
The annual cost of such FTEs shall be due and payable in equal semi-annual
installments in advance, according to the following schedule. The first
such payment shall be based on [CONFIDENTIAL TREATMENT REQUESTED]
FTE's, and shall be due and payable upon execution of this Agreement, to
cover the FTE cost through December 31, 1995, on a prorated basis.
Thereafter, FTE payments for each semi-annual period shall be due and
payable on each January 15 and July 15 until the end of the fifth year
following execution of this Agreement, the final payment also being
prorated.
If the level of effort by Chiron is less than an average, on an annual
basis, of the number of FTE's required and funded pursuant to this
Section 3.1.5, Ciba will be entitled to additional FTE effort in
subsequent semi-annual periods, such that the required annual average is
restored. Conversely, if the average annual level of effort by Chiron
exceeds the number of FTE's required and funded pursuant to this Section
3.1.5, Chiron will be entitled to reduce the FTE effort in subsequent
semi-annual periods, such that the required annual average is restored.
From time to time during the five years following the execution of this
Agreement, each party shall be entitled, at its own expense, to locate an
agreed number of its employees at the premises of the other party, for
such periods as may be agreed, for the purposes of the transfer of
information regarding the Chiron Licensed Technology and Chiron Licensed
<PAGE>
-11-
Technology Improvements, on the one hand, and the Ciba Licensed
Technology and Ciba Licensed Technology Improvements on the other hand.
All such visits shall be subject to the confidentiality obligations set
forth in Article 9.
3.1.6 Attached hereto as Exhibit C is a complete list of the Chiron patents
which are available for license hereunder, whether as part of the
Technology Transfer Field or pursuant to Section 3.2.3, as of the date of
execution of this Agreement. Chiron will update this list once every
year during the term of this Agreement.
3.1.7 Although divisions of Ciba other than the Pharma Division as well as
corporate units of Ciba may be involved in the transfer of information
regarding the Chiron Licensed Technology, the prime point of contact
within Ciba shall be the Pharma Division. Ciba will be solely
responsible for transferring such information and technology to, and
acquiring and installing equipment for, its other divisions and corporate
units.
3.1.8 In consideration of the licenses granted pursuant to Section 3.5,
Ciba will pay Chiron the sum of Twenty-six Million Dollars ($26,000,000),
payable as follows:
$5,500,000 upon execution of this Agreement;
[CONFIDENTIAL TREATMENT REQUESTED] upon the first anniversary of the
execution of this Agreement;
[CONFIDENTIAL TREATMENT REQUESTED] upon the second anniversary of the
execution of this Agreement;
[CONFIDENTIAL TREATMENT REQUESTED] upon the third anniversary of the
execution of this Agreement;
[CONFIDENTIAL TREATMENT REQUESTED] upon the fourth anniversary of the
execution of this Agreement;
and
[CONFIDENTIAL TREATMENT REQUESTED] upon the fifth anniversary of the
execution of this Agreement.
3.1.9 Chiron will keep records of the time spent by its FTEs pursuant to
this Section 3.1, as well as pursuant to Sections 3.2 and 3.3, including
the transfer of information relating to Chiron Licensed Technology
Improvements. Ciba shall have the right to have these records audited in
the same manner as is set forth in Section 7.4. Chiron will report the
level of FTE effort to Ciba on a semi-annual basis.
3.1.10 As soon as practicable following execution of this Agreement, Ciba
will inform Chiron of the Ciba Licensed Technology available for
license to Chiron hereunder. The parties will mutually arrange for
transfer of the Ciba Licensed Technology to Chiron as part of the
technology transfer process pursuant to this Section 3.1.
3.2 IMPROVEMENTS AND ACQUIRED TECHNOLOGY
3.2.1 In connection with the licenses granted pursuant to Section 3.5, each
party will keep the other informed during the five years following the
execution of this Agreement of all Chiron Licensed Technology
Improvements and all Ciba Licensed Technology Improvements, respectively.
Pursuant to Section 1.30, each party will keep the other
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informed of developments which may cause the definition of the Technology
Transfer Field to expand, and of technology of the informing party which
may become Chiron Licensed Technology or Ciba Licensed Technology,
respectively, in the event of such an expansion of such definition. The
parties will develop methods for effectively exchanging information about
improvements, which will include consideration of such matters at the
regular meetings of the Transfer Project Team and Steering Committee.
Through the Steering Committee, the parties will keep appropriate records
to identify the Chiron Licensed Technology Improvements and the Ciba
Licensed Technology Improvements. Methods of exchanging information may
also include visits pursuant to Section 3.1.5 (last paragraph), seminars
or other scientific exchanges.
3.2.2 In the event that (i) either party currently holds technology which is
within the Technology Transfer Field but which is subject to obligations
to third parties; or (ii) either party acquires in the future, by
purchase, license or otherwise, Subject Technology, as defined below; or
(iii) either party acquires an Affiliate which holds Subject Technology;
in the case of (ii) or (iii), within the five years following the
execution of this Agreement; such party agrees, if so requested by the
other party, to include such technology within licenses granted pursuant
to Section 3.5.1 or 3.5.2, as the case may be, subject to the conditions
set forth in this Section 3.2.2. For the purposes hereof, Subject
Technology means technology within the Technology Transfer Field which,
in the case of Chiron, would have been Chiron Licensed Technology or
Chiron Licensed Technology Improvements had it been invented solely by
Chiron, and in the case of Ciba, would have been Ciba Licensed Technology
or Ciba Licensed Technology Improvements, had it been invented solely by
Ciba.
Such licenses shall be subject to the following conditions:
(i) Such acquiring party has the right to obtain such technology and to
license it to the other party hereunder; and
(ii) If the technology in question is acquired or licensed from a third
party, the license of such technology to the other party
hereunder shall be subject to all terms and conditions which are
imposed by such third party with respect thereto, including without
limitation payment of all royalties which are due and payable to
the third party with respect to the use of such technology by the
other party pursuant to this Agreement; and
(iii) In the case of acquisitions after the execution date hereof, if the
acquiring party has paid consideration to acquire the Affiliate or
the technology in question, prior to license of such technology
hereunder, the parties shall reasonably negotiate in good faith
compensation to the acquiring party which will result in a fair
sharing by the parties of the acquisition cost of the technology,
considering their respective interests therein.
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3.2.3 In the event that Ciba wishes to obtain sublicenses to [CONFIDENTIAL
TREATMENT REQUESTED] currently licensed or assigned to Chiron and subject
to obligations to third parties, the provisions of Section 3.2.2 shall
apply to such sublicenses.
3.3 JOINT IMPROVEMENT OF TECHNOLOGY
3.3.1 During the five (5) years following the execution of this Agreement,
Ciba and Chiron may cooperate with a view to the development of
improvements within the Technology Transfer Field, in accordance with
technology development plans to be agreed by the parties. Any such
projects which are mutually agreed upon shall, unless otherwise agreed,
be equally funded by the parties. Except as expressly set forth in this
Agreement, each party shall be free to use and to grant sublicenses under
any joint inventions resulting from such cooperation.
3.3.2 The Steering Committee may nominate one or more Development Project
Teams to implement the development plans.
3.3.3 For joint improvements of technology which are claimed in patent
applications or patents, the Steering Committee shall determine what
compensation, if any, shall be received by one party in the event that
the other party licenses any such joint improvement to a third party,
using the criteria set forth in Section 3.5.2(b) with respect to
compensation. Any dispute concerning such compensation shall be referred
to the Science Committee.
3.4 TITLE TO NEW INVENTIONS AND PATENT RIGHTS
3.4.1 Subject to the licenses granted pursuant to Section 3.5, as between
the parties hereto, ownership of new inventions within the Technology
Transfer Field, whether made individually or as part of the Technology
Improvement Collaboration pursuant to Section 3.3, shall be based on the
principles set forth below. For clarity of understanding, the parties
agree that new inventions pursuant to the Target Collaboration leading to
Compound Patents or Library Patents shall not be deemed within the
Technology Transfer Field, and shall be governed by Section 4.6, rather
than by this Section.
(a) If the new invention is a patentable improvement to the Chiron
Licensed Technology, such invention shall be assigned
to Chiron. The ultimate assignee of the invention shall be
determined by the parties, prior to filing a patent application if
reasonably possible, according to the following considerations:
(i) If the new invention was made solely by Chiron employees
or assignors, the assignment shall remain with Chiron.
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(ii) If the new invention was made solely by Ciba employees or
assignors, or jointly by Ciba employees and Chiron
employees and/or their respective assignors, the
ultimate assignee shall be determined according to
inventorship under U.S. patent law, unless the parties
agree that a different disposition should occur.
Ownership of patent applications filed outside the
U.S. shall be determined according to inventorship.
Inventorship shall be determined under U.S. patent
law.
(b) If the new invention is a patentable improvement to the Ciba
Licensed Technology, such invention shall be assigned to Ciba.
The ultimate assignee of the invention shall be determined by the
parties, prior to filing a patent application if reasonably
possible, according to the following considerations:
(i) If the new invention was made solely by Ciba employees or
assignors, the assignment shall remain with Ciba.
(ii) If the new invention was made solely by Chiron employees or
assignors, or jointly by Ciba employees and Chiron
employees and/or their respective assignors, the ultimate
assignee shall be determined according to inventorship
under U.S. patent law, unless the parties agree that a
different disposition should occur. Ownership of patent
applications filed outside the U.S. shall be determined
according to inventorship. Inventorship shall be
determined under U.S. patent law.
(c) If the new invention represents new technology, rather than an
improvement to the Chiron Licensed Technology or the Ciba
Licensed Technology as the case may be:
(i) If the invention is made by employees or assignors of one
party hereto (or its Affiliates), whether solely or
jointly with employees or assignors of a third party,
such invention shall be assigned to the party which is
the employer or assignee of the inventor (subject to such
ownership interests as may vest in any such third party).
(ii) If such invention is made jointly by employees or assignors
of Chiron or its Affiliates, on the one hand, and by
employees or assignors of Ciba or its Affiliates, on the
other hand, such invention shall be assigned to the
parties jointly.
(iii) Inventorship shall be determined in accordance with United
States Patent Law.
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(d) For the purposes of this Section 3.4.1, an "assignor" of a party is an
individual under an obligation to assign patent rights to that
party, e.g., a consultant retained by that party.
3.4.2 Chiron shall have the sole right to file, maintain and prosecute
patents with respect to the Chiron Licensed Technology and with respect to
inventions or discoveries finally assigned to Chiron. Chiron agrees to
keep Ciba reasonably informed as to the status of the Chiron Licensed
Technology Patents.
3.4.3 Ciba shall have the sole right to file, maintain and prosecute patents
with respect to Ciba Licensed Technology and with respect to inventions or
discoveries finally assigned to Ciba. Ciba agrees to keep Chiron
reasonably informed as to the status of the Ciba Licensed Technology
Patents.
3.4.4 In the case of an invention or discovery owned jointly by the parties,
the Steering Committee shall decide which party shall be responsible for
filing the patent application(s), if any, in respect thereof. Joint
patents shall be the joint property of both parties, who shall share the
costs of filing applications and of maintenance.
3.5 TECHNOLOGY LICENSES AND OPTIONS
3.5.1 Subject to the terms, conditions and limitations of this Agreement,
Chiron hereby grants to Ciba a perpetual, worldwide, non-exclusive,
royalty-free license to use internally, including use by Ciba in third
party collaborations, the Chiron Licensed Technology and the Chiron
Licensed Technology Improvements, including without limitation the Chiron
Licensed Technology Patents, for the purpose of research and development,
and to make, have made, use and sell products arising as a result of such
research and development, except that (i) such license shall be limited as
provided in this Section 3.5.1; and (ii) Ciba's rights with respect to
products arising from the Target Collaboration shall be governed by Article
4 hereof. Such license expressly excludes any right to make, have made, or
sell the Chiron Licensed Technology or the Chiron Licensed Technology
Improvements themselves as products for research use.
(a) For Chiron Licensed Technology Improvements which are not claimed in
Chiron Licensed Technology Patents, and are not otherwise
determined by the Steering Committee to merit restrictions
on sublicensing under the criteria set forth in Section 3.5.2(b),
and represent improvements to Ciba Licensed Technology only,
rather than to the Chiron Licensed Technology, Ciba shall have the
right to grant sub-licenses to such Chiron Licensed Technology
Improvements hereunder to third parties [CONFIDENTIAL TREATMENT
REQUESTED].
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(b) Save as mentioned at (a) in this Section 3.5.1, Ciba shall not have
the right to grant sublicenses under Chiron Licensed Technology and
Chiron Licensed Technology Improvements except to Affiliates of
Ciba, without the prior written consent of Chiron.
(c) Ciba shall not use the Chiron Licensed Technology or Chiron Licensed
Technology Improvements for research or development with respect to
the Restricted Targets, without Chiron's prior written consent,
subject to the following:
(i) [CONFIDENTIAL TREATMENT REQUESTED]
(ii) Nothing herein shall preclude Ciba from utilizing Ciba Licensed
Technology, or improvements invented by Ciba to the Ciba
Licensed Technology, or technology acquired by Ciba from third
parties, against the Restricted Targets.
(iii) Nothing herein shall preclude Ciba from utilizing, against the
Restricted Targets, technology which is within the public
domain, unless and until patents are issued covering such
technology.
(iv) As of the first anniversary of the execution of this Agreement,
the parties will mutually determine the impact of these
restrictions. If, as of such date, no Restricted Targets
remain, these restrictions shall be deemed to have no impact.
If, as of such date, any Restricted Targets remain, the parties
shall determine whether, as of such date, the restrictions
imposed under this Section 3.5.1(c) actually preclude the use
of Chiron Licensed Technology in an active research project of
Ciba against a Restricted Target as to which Ciba would, absent
such restrictions, utilize the Chiron Licensed Technology. If
not, the restrictions shall be deemed to have no impact. If
so, Chiron agrees that Ciba shall be entitled to a credit of
[CONFIDENTIAL TREATMENT REQUESTED] for each Restricted Target
as to which use of the Chiron Licensed Technology in an active
Ciba program is actually precluded, up to a maximum of
[CONFIDENTIAL TREATMENT REQUESTED].
Such credit shall be applied against the consideration payable by
Ciba pursuant to Section 3.1.8. If there is one Restricted
Target resulting in such preclusion, such credit shall be
implemented by reducing the payment due upon [CONFIDENTIAL
TREATMENT REQUESTED] of this Agreement to [CONFIDENTIAL
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TREATMENT REQUESTED]. If there are two or more Restricted
Targets resulting in such preclusion, the payment due upon
[CONFIDENTIAL TREATMENT REQUESTED] of this Agreement shall be
reduced to [CONFIDENTIAL TREATMENT REQUESTED] and, the payment
due upon [CONFIDENTIAL TREATMENT REQUESTED] of this
Agreement shall be reduced to [CONFIDENTIAL TREATMENT
REQUESTED]. Except as provided herein, all consideration for
the licenses granted in this Section 3.5 shall remain payable
as provided in Section 3.1.8.
3.5.2 Subject to the terms, conditions and limitations of this Agreement,
Ciba hereby grants to Chiron a perpetual, worldwide, non-exclusive license
to use internally, including use by Chiron in third party collaborations,
the Ciba Licensed Technology and the Ciba Licensed Technology Improvements,
including without limitation the Ciba Licensed Technology Patents, for the
purpose of research and development, and to make, have made, use and sell
products arising as a result of such research and development, except that
Chiron's rights with respect to products arising from the Target
Collaboration shall be governed by Article 4 hereof. Such license
expressly excludes any right to make, have made, or sell the Ciba Licensed
Technology or the Ciba Licensed Technology Improvements themselves as
products for research use.
(a) For Ciba Licensed Technology or Ciba Licensed Technology Improvements
which are not claimed in Ciba Licensed Technology Patents
and are not otherwise determined by the Steering Committee to
merit compensation or restrictions on sublicensing under the
criteria set forth in Section 3.5.2(b), Chiron shall have the
right to grant sublicenses to such Ciba Licensed Technology or
Ciba Licensed Technology Improvements hereunder to third parties,
[CONFIDENTIAL TREATMENT REQUESTED].
(b) For Ciba Licensed Technology or Ciba Licensed Technology Improvements
which are claimed in Ciba Licensed Technology Patents, the
Steering Committee will determine whether the invention
merits restrictions on sublicensing and/or compensation to
Ciba, based on such factors as uniqueness, competitive
advantage, and commercial value. It is understood that the
fact that an invention is claimed in a patent application or
patent is not itself sufficient to justify either
restrictions on sublicensing or compensation. On an
exceptional basis, a series of non-patented inventions, when
taken and used together, may also be deemed by the Steering
Committee to merit restrictions on sublicensing and/or
compensation.
(c) Based on the criteria set forth in Section 3.5.2(b), the Steering
Committee may determine (i) that Chiron will not have the
right to grant sublicenses under the invention in question to
third parties, other than its Affiliates, without the prior
written consent of Ciba; or (ii) that Ciba is entitled to
reasonable compensation for Chiron's internal use and/or
sublicense of the invention in question, in which event,
<PAGE>
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the amount of such compensation will be negotiated in good faith;
provided always that the [CONFIDENTIAL TREATMENT REQUESTED]
payable to Ciba for Chiron's internal use of Ciba Licensed
Technology or Ciba Licensed Technology Improvements hereunder
during the five years following the date of this Agreement shall
not exceed [CONFIDENTIAL TREATMENT REQUESTED]. Any dispute with
respect to any such determinations shall be referred to the
Science Committee for resolution.
3.5.3 The parties acknowledge that Ciba wishes to use the Chiron Licensed
Technology to independently design, synthesize and/or analyze new
Combinatorial Libraries, and to use such libraries and the compounds
contained therein without restriction. The parties further acknowledge
that, due to current commitments, and to potential future commitments which
Chiron is free to make, both internally and with third parties, as
reflected in Section 1.30, Chiron will not provide to Ciba any
Combinatorial Libraries or any assistance or collaborative effort in the
design or synthesis of libraries, except subject to restrictions as to
their use. As a result, and for clarity of understanding, the parties
agree as follows:
(a) The Chiron Licensed Technology and the Chiron Licensed Technology
Improvements will not include any Combinatorial Libraries
and Chiron will not provide Ciba with any assistance in designing
or synthesizing specific Combinatorial Libraries, except as part
of the Target Collaboration, and subject to all of the terms and
conditions thereof.
(b) Pursuant to the Target Collaboration, Chiron will provide
Combinatorial Libraries to Ciba, will assist Ciba in designing
Combinatorial Libraries, and will work cooperatively to design
and synthesize Combinatorial Libraries, all for use in the Target
Collaboration only.
(c) Each party agrees that it will not design or synthesize any
Combinatorial Libraries which it knows or has reason to know
duplicate Combinatorial Libraries provided or disclosed by the
other party for use in the Target Collaboration, except with the
prior written consent of the other party. In the event such
consent is granted, the grantee agrees to use such Combinatorial
Libraries only for the purposes of the Target Collaboration
pursuant to Article 4, except with the other party's prior
written consent and on terms to be negotiated in good faith.
Ciba further agrees not to utilize any Chiron or Joint
Combinatorial Libraries, or compounds included therein or
developed through the Target Collaboration, against Third Party
Excluded Targets. Use of Joint Libraries is further governed by
Section 4.8.3.
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4 TARGET COLLABORATION
The Target Collaboration shall commence upon Ciba's selection of the
initial Selected Targets ("the Commencement Date"), which shall not be later
than [CONFIDENTIAL TREATMENT REQUESTED] after the date of execution of this
Agreement. The Target Collaboration shall continue for three years
following the Commencement Date, extendable for up to two additional years
under the same FTE funding terms as are set forth in Section 4.2.4,
[CONFIDENTIAL TREATMENT REQUESTED].
4.1 TARGET SELECTION
4.1.1 As soon as practicable after execution of this Agreement, Ciba shall
provide to Chiron a list of Targets in which Ciba is interested, other
than Third Party Excluded Targets. The parties shall meet and discuss the
Targets on such list and the respective capabilities of the parties in
these areas, and shall together determine a group of potential Targets,
from which Ciba shall select two (2) initial Selected Targets. It is
acknowledged that as to Targets on which Chiron has done prior work which
the parties then agree will be used within the Target Collaboration, or as
to which the parties then agree that Chiron will provide proprietary
biology not generally available to researchers in the area, either of which
constitute additional value to the Target Collaboration beyond the value of
Chiron's Combinatorial Technology capabilities and Combinatorial Libraries,
Chiron will be entitled to reasonable compensation for the additional value
added. As part of the foregoing discussions, the parties will mutually
agree upon applicable compensation, if any, with respect to a Target prior
to Ciba's selection of that Target as a Selected Target.
4.1.2 Upon request by Ciba and receipt of the payments required pursuant to
Section 4.2.3 Chiron will provide Ciba with sufficient quantities of
existing Chiron Combinatorial Libraries for the purpose of screening
against the Selected Targets.
4.1.3 Chiron shall have no obligation to provide Ciba, for use in the Target
Collaboration, any Chiron Combinatorial Library developed by Chiron
jointly with a third party, or developed solely by Chiron but pursuant to
the terms of an agreement with a third party, or developed for Chiron's use
outside the Target Collaboration. Chiron Combinatorial Libraries
developed jointly with or under agreement with third parties will not be
available for use in the Target Collaboration unless such third party
consents, and shall then be subject to such additional terms and conditions
as may be imposed by the third party. Chiron will inform Ciba of any such
additional terms and conditions prior to the use of any such Chiron
Combinatorial Library hereunder.
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4.2 RESEARCH PROGRAM
4.2.1 The parties agree to enter into a research program to utilize
Combinatorial Libraries, including libraries designed pursuant to such
research program, to screen against the Selected Targets, to optimize hits
and to produce sets of compounds achieving Research Compound or above
status in the Target Collaboration Field. Once the Selected Targets have
been determined pursuant to Section 4.1, the parties agree that during the
term of the Target Collaboration they will collaborate exclusively with
each other in the Target Collaboration Field with respect to the Selected
Targets, subject to the following:
(a) The parties recognize that this Agreement is intended to focus on
compound discovery, optimization and development within the
Target Collaboration Field. The parties agree to include within the
Target Collaboration any internal programs or collaborations which
would otherwise constitute competing discovery and optimization
programs with respect to the Selected Targets within the Target
Collaboration Field. However, Ciba will not be precluded from
acquiring rights to and pursuing, independently of the Target
Collaboration, individual third party compounds against the Selected
Target which have already reached at least the Research Compound
Stage, provided that no data or information arising from the Target
Collaboration is used in connection with such development. In such
event, the Target Collaboration as to such Selected Target will
continue to be governed by all terms of this Agreement, including
without limitation the diligence obligations set forth in Section
4.3.10.
(b) Either party may from time to time wish to acquire technology or
collaborate with third parties within the Target Collaboration
Field to enhance the prospect of success and be included within
the Target Collaboration (e.g. with a university in the
development of an assay). Since such transactions may have
financial impact on, or affect intellectual property, confidential
information or product rights of, the other party hereunder, neither
party will enter into such a transaction without the approval of the
other party, which approval shall not be unreasonably withheld. If
one party bears the financial burden of such a third party
collaboration, the parties will reasonably discuss whether an
adjustment should be made to the compensation payable to such party
pursuant to Section 4.3.
(c) Nothing herein shall restrict either party from establishing programs
outside the Target Collaboration Field with respect to the same
Selected Targets, including for example and without limitation,
biological or gene therapy approaches to such Selected Targets.
(d) Both parties acknowledge that Chiron is currently party to, and may in
the future enter into additional, target collaborations with
third parties. Chiron may also enter into
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future transactions with third parties which involve technology
transfer independent of collaborations on specific targets. With
respect to any such arrangements, the parties understand as follows:
(i) Chiron will not provide third parties with Chiron Combinatorial
Libraries or licenses under Chiron Library Patents, or
actively participate with third parties in the design
of new Combinatorial Libraries or compounds, for use
with the Selected Targets during the term of the Target
Collaboration, or otherwise in violation of the licenses
granted pursuant to Section 4.7.1 hereunder. With respect to
target specific collaborations which Chiron enters into after
the execution date of this Agreement, Chiron will impose
restrictions on third party use of selectivity assays directed
toward Ciba's Selected Targets which are similar to the
restrictions set forth in Section 4.2.11(a).
(ii) However, Chiron will not be required to restrict future third
party recipients of technology transfer from utilizing
the transferred technology to design or synthesize
Combinatorial Libraries for use against any target, including
Selected Targets, provided that Chiron does not participate in
such design or grant licenses in violation of Section
4.2.1(d)(i).
(iii) In the course of target collaborations with third parties,
compounds may be identified against targets other than
Selected Targets, which compounds prove useful against the
Ciba Indications, as identified under Section 4.3. Chiron
shall not be required to restrict the ability of any third
party to pursue all indications of such compounds, despite the
fact that some overlap with the Ciba Indications may exist;
except in the event that the compound itself is licensed
exclusively to Ciba pursuant to Section 4.7.1(b).
(iv) Ciba acknowledges that Chiron and/or its Affiliate, Chiron
Mimotopes Pty Ltd, currently engage in the design and
sale of pins for use in organic chemistry, and will
continue to engage in such business, including
progressively newer generations of pins. Chiron
Mimotopes currently does, and will continue to, engage
in synthesis of peptides and other compounds based on
specifications provided by third parties. Chiron and
Chiron Mimotopes will not be required to impose any
target restrictions with respect to any such sales or
services.
4.2.2 The Target Collaboration shall be implemented by project teams
("Target Project Teams"), membership of which will be according to the
needs of the particular project. The leaders of the Target Project Teams
shall be nominated by the Steering Committee. In the
<PAGE>
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event of deadlock on any matter the Target Project Teams shall refer such
matter to the Steering Committee.
With respect to the Target Collaboration, the Steering Committee shall function
as defined in Article 2, except that Ciba's views shall prevail, subject to
all other terms of this Article 4, in the selection of, replacement of, or
abandonment of, Selected Targets.
4.2.3 In consideration of the exclusive rights given to it with respect to
the Selected Targets Ciba shall make a once and for all payment to Chiron
of [CONFIDENTIAL TREATMENT REQUESTED] for each of the two initial
Selected Targets, ([CONFIDENTIAL TREATMENT REQUESTED] in total). This
amount shall be payable upon the Commencement Date.
4.2.4 In addition, Ciba shall pay Chiron's fully-burdened costs per year per
FTE actively engaged in the Target Collaboration. The initial rate shall
be [CONFIDENTIAL TREATMENT REQUESTED] per FTE per year, this amount to be
increased annually, effective January 1 of each calendar year, based on
increases in the [CONFIDENTIAL TREATMENT REQUESTED] for the previous
calendar year. Such indexing shall occur initially as of January 1, 1996,
regardless of whether payments pursuant to this Section 4.2.4 have then
occurred. This payment compensates Chiron for all ordinary travel and
subsistence expenses incurred by such FTE's, but excludes expenses of
extraordinary travel or exceptionally long stays, which shall be separately
reimbursed in amounts to be mutually agreed upon by the parties. For the
purposes of this Section 4.2.4, travel which exceeds (i) travel necessary
to attend meetings of the Target Project Team and/or Steering Committee,
plus (ii) [CONFIDENTIAL TREATMENT REQUESTED] days per year per FTE, shall
be considered extraordinary travel or exceptionally long stays.
Unless otherwise agreed in writing, Chiron shall make available an average of
[CONFIDENTIAL TREATMENT REQUESTED] FTEs per year for each of the two
Selected Targets. Such FTEs shall include a balanced group of Ph.D. or
equivalent and other scientists. For the avoidance of doubt, if research
effort on one of the Selected Targets is reduced or terminated before the
end of the Target Collaboration, the FTE's employed on that Target shall
be deployed on the remaining Selected Target or Targets for the remainder
of the Target Collaboration.
The annual cost of such FTEs shall be due and payable in equal semi-annual
installments in advance, on the following schedule. The first such payment
shall be due and payable upon the Commencement Date, and shall cover the
FTE cost from such date through the end of the then current semi-annual
period, on a prorated basis. Thereafter, FTE payments for each semi-annual
period shall be due and payable on each January 15 and July 15 for the
remainder of the term of the Target Collaboration the last payment also
being prorated.
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4.2.5 Ciba may elect to add up to two Selected Targets, increasing the total
number of Selected Targets to a maximum of four at any time. Collaboration
on any such additional Selected Targets shall continue for a minimum of two
years, and Ciba agrees to extend the Target Collaboration as necessary to
accommodate such requirement. The proposed additional Targets shall be
selected by Ciba in the same manner as is provided in Section 4.1.1 and
shall not be Third Party Excluded Targets. Ciba agrees to pay a one time
fee of [CONFIDENTIAL TREATMENT REQUESTED] per Target added. At the time
a Target is added, the parties shall mutually agree upon the number of
additional FTE's needed in connection with each such Target and the cost
thereof. Ciba agrees to pay for the FTE cost of, and Chiron agrees to
make available, such additional FTE's, all in the same manner as is set
forth in Section 4.2.4.
4.2.6 The parties agree to work on each Selected Target for a reasonable
period of time. Ciba may elect to abandon any of the Selected Targets at
any time during the term of the Target Collaboration for scientific,
technical or commercial reasons, on written notice to Chiron. Ciba shall
select a replacement Selected Target for each abandoned Target, to the
extent necessary to maintain at least two Selected Targets within the
Target Collaboration; provided that if a Selected Target is abandoned
within the last six months of the Target Collaboration, Ciba need not
select a replacement, so long as Ciba continues to pay for the full
[CONFIDENTIAL TREATMENT REQUESTED] FTE commitment pursuant to Section
4.2.4. Replacement Selected Targets will be selected in the same manner
as is provided in Section 4.1.1 and shall not be Third Party Excluded
Targets. Collaboration on any such replacement Selected Target shall
continue for a minimum of two years, and the collaboration shall be
extended as necessary to allow for such two year period. No further
payment shall be made by Ciba pursuant to Section 4.2.3 for a Target
selected to replace any Selected Target.
4.2.7 Ciba and Chiron shall cooperate in the use of assays developed prior
to or during the Target Collaboration by Ciba and/or Chiron for the
identification or further characterization of a compound or compounds for
the two Selected Targets.
Each party agrees not to use outside the Target Collaboration any assays
which have been independently developed by the other party outside the
Target Collaboration and provided for use in the Target Collaboration,
except with the prior written consent of the providing party and on terms
to be negotiated in good faith.
From time to time, Ciba may request Chiron to utilize the FTE's provided
pursuant to Section 4.2.4 to develop new assays with respect to the
Selected Targets. Chiron agrees to undertake such assay development
subject to availability of resources for such work. If such development
involves then existing proprietary biology of Chiron which adds value,
Chiron will be entitled to mutually agreed compensation for the value
added in the same manner as is provided in Section 4.1.1. New assays
developed as part of the Target Collaboration will
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be available to both parties for use outside the Target Collaboration,
without compensation to the other party except pursuant to the preceding
sentence.
4.2.8 The Target Project Teams shall meet as often as may be required for
the purposes of the collaboration but in any event not less than four times
per year, again unless otherwise agreed by the parties. Written reports of
such meetings and of the status of the individual projects shall be
submitted to the Steering Committee. Unless otherwise agreed, meetings
shall alternate between the relevant sites of Chiron and Ciba.
4.2.9 Chiron will keep records of the time spent by its FTEs on the Target
Collaboration. Ciba shall have the right to have these records audited, in
the same manner as is set forth in Section 7.4. Chiron will report the
level of FTE effort to Ciba on a semi-annual basis. During the course of
the Target Collaboration, Chiron will notify Ciba if it becomes apparent
that the level of effort at Chiron is expected to exceed the level required
under Section 4.2.4.
If the level of effort is less than an average, on an annual basis, of the
number of FTE's required pursuant to Section 4.2.4, Ciba will be
entitled to additional FTE effort in subsequent semi-annual periods,
such that the required annual average is restored. Conversely, if the
average annual level of effort by Chiron exceeds the number of FTE's
required and funded pursuant to Section 4.2.4, Chiron will be entitled to
reduce the FTE effort in subsequent semi-annual periods, such that the
required annual average is restored. At the end of the Target
Collaboration, the parties will restore any such imbalance between actual
and funded FTE's either through appropriate payments or refunds, or
through an extension of the Target Collaboration until the balance is
restored.
4.2.10 If a Selected Target is abandoned pursuant to Section 4.2.6, ownership
and all rights to all data and information resulting from the Target
Collaboration with respect to such abandoned Target shall be
determined as follows, subject to the provisions of Section 4.2.11:
(a) Either party shall be free to use, without further compensation
to the other, information generally applicable to
the abandoned Target or to multiple targets, such as assay
technology, animal models, etc. Either party shall also be
free to use information otherwise in the public domain.
(b) Chiron shall have the exclusive right to use all unpublished
compound specific information, including without limitation
bioactivity and profile information (collectively, the
"Compound Data") with respect to the abandoned Target,
subject to payment of a royalty to Ciba on any products
resulting from the use of such Compound Data, at a rate
between [CONFIDENTIAL TREATMENT REQUESTED], to be mutually
determined. Such rights shall include the patent licenses
granted pursuant to
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Section 4.7.2(c). Chiron shall have the right to use the
Compound Data to conduct research and development of such
products alone or with a third party. For the purposes of
Article 9 hereof, the Compound Data will be deemed
Proprietary Information of Chiron following the abandonment
of the Selected Target.
(i) From such time as Chiron elects to proceed with a third
party, Ciba shall have no right to resume research and
development using the Compound Data with respect to
the abandoned Target.
(ii) If Chiron is not proceeding with a third party and Ciba
wishes to resume research and development with respect
to the abandoned Target using Compound Data, Ciba will
have the following rights:
(aa) If Ciba wishes to resume within five (5) years after
the Commencement Date and Chiron has not
commenced its own research and development program
with respect to the abandoned Target, Ciba may add
the abandoned Target to the collaboration as a
Selected Target pursuant to Section 4.2.5, or may
replace another Selected Target with the abandoned
Target pursuant to Section 4.2.6.
(bb) If Ciba wishes to resume within five (5) years after
the Commencement Date and Chiron has commenced its
own research and development program with respect
to the abandoned Target, Ciba may buy in to a co-
development program with Chiron in the same manner
as is set forth in Section 4.3.6.
(cc) If Ciba wishes to resume more than five (5) years after
the Commencement Date, which period may be
extended as provided below, Ciba shall be free to
pursue the abandoned Target using the Compound
Data, subject to payment of a royalty to Chiron on
any products resulting from such information at a
rate between [CONFIDENTIAL TREATMENT REQUESTED],
to be mutually determined. If Chiron is then
pursuing the abandoned target, alone or with
third parties, Ciba will not be entitled to any
licenses under any patents covering the Compound
Data which have been assigned or exclusively
licensed to Chiron. If Chiron has also abandoned
the target at that point, Ciba will be entitled to
such licenses under such patents as will enable
Ciba to proceed, and Chiron will retain such
rights as
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will enable Chiron to resume its activity with
respect to such target in the future, unless
otherwise agreed by the parties at the time. The
five (5) year period referenced in this
subsection (cc) shall be reasonably extended if
the Selected Target is abandoned late in the
Target Collaboration, to allow Chiron reasonable
time to either commence its own activities with
respect to such target, or to seek a third party
collaborator.
4.2.11 The parties recognize that in the course of the collaboration, the
parties will test Compound Hits and potential Research Compounds in
assays directed toward Targets other than Selected Targets for
selectivity purposes.
(a) If the selectivity assay is directed toward a Third Party
Excluded Target, Ciba shall have the right to use
the results only for the purpose of determining selectivity
of its compounds against the Selected Target. If the assay
identifies activity against the Third Party Excluded Target,
the parties shall reasonably discuss whether Chiron will
have the right to use such results with its third party
collaborator in a research and development program against
the Third Party Excluded Target, subject to a reasonable
royalty to Ciba at a rate between [CONFIDENTIAL TREATMENT
REQUESTED]. In the absence of such an arrangement, neither
party shall have any rights to use the data in any program
directed against the Third Party Excluded Target.
(b) If the selectivity assay identifies activity against any Target
other than a Third Party Excluded Target, the
parties will consider whether such other Target
should be included within the Target Collaboration
as an added or replacement Target. If not, the
parties will mutually determine the respective
rights of either or both of them to use such
results in independent programs directed toward
such Target and the appropriate compensation
therefor, which shall consist of a reasonable
royalty at a rate between [CONFIDENTIAL
TREATMENT REQUESTED].
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4.3 RESEARCH COMPOUNDS AND DEVELOPMENT CANDIDATES
The provisions of this Section 4.3 shall apply only to compounds that
achieve Research Compound status or above within [CONFIDENTIAL
TREATMENT REQUESTED]years after the end of the Target Collaboration.
As to such compounds, the parties agree that product development and
commercialization rights will be allocated as follows:
4.3.1 For each of the Selected Targets, once Compound Hits have been
identified through the primary Target assay, Ciba will prepare a
preclinical research and development plan, including protocols and
timetables for profiling and other steps necessary to move Compound Hits
to the Research Compound stage in the indication(s) of primary interest
to Ciba (the "Ciba Indications"). The plan will be submitted to the
Steering Committee for information purposes. Based on the plan, the
Steering Committee will agree on the criteria for success, for the
purpose of determining which compounds will become available for Chiron
development pursuant to Section 4.3.3.
4.3.2 Compounds meeting the criteria for success determined under Section
4.3.1 will be available for development by Ciba. While the parties
anticipate that Ciba's development program will focus on the Ciba
Indications, Ciba shall have the right to fully develop any compound it
selects as an EDC for any indications except that Ciba agrees not to
pursue any compound arising from the Target Collaboration against the
indications set forth in Exhibit E without Chiron's prior written
consent.
4.3.3 Compounds which are not tested or do not meet the criteria for success
determined under Section 4.3.1 will become available for development by
Chiron in indication(s) (the "Chiron Indications") other than the Ciba
Indications, subject to the provisions of this Section 4.3. At its
meetings, the Steering Committee will review which compounds become
available for Chiron development pursuant to this Section 4.3.3. If
Chiron wishes to proceed with development of such compounds in the Chiron
Indications, Chiron will prepare a preclinical research and development
plan, including protocols and timetables for profiling and other steps
necessary to move Compound Hits to the Research Compound stage in the
Chiron Indications. Such plan will be submitted for information purposes
to the Steering Committee. Based on the plan, the Steering Committee
will agree on the criteria for success. Development rights to compounds
which do not meet the criteria for success under the Chiron plan shall be
subject to mutual agreement.
Ciba retains the right to continue to screen, in the Ciba Indications,
compounds which are available for Chiron development pursuant to this
Section 4.3.3.
4.3.4 Chiron agrees not to pursue regulatory approval of any compounds for
the same or overlapping indications to the Ciba Indications, as the Ciba
Indications are identified as of
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the earlier of [CONFIDENTIAL TREATMENT REQUESTED]. If the Ciba Indications
change after that point, the provisions of Section 4.3.6 shall govern.
Chiron shall have the right to fully develop any compound it selects as an
EDC for any indications other than the Ciba Indications identified as
provided in this Section 4.3.4.
The determination of whether Chiron Indications are the same or overlapping
with the Ciba Indications shall be made jointly by Ciba and Chiron, and
shall be based on all relevant information available at that time. Relevant
considerations include differences in Target subtype or isozyme, chemical
structure, pharmacology, mode of administration, therapeutic or toxicity
profile, or expected disease indications. Examples of anticipated
overlapping indications include the following, without limitation:
serotonin re-uptake inhibitors for anxiety and depression; estrogen
receptor antagonists for breast and ovarian cancer; estrogen replacement
for menopause and osteoporosis; ACE inhibitors for hypertension, congestive
heart failure and renal insufficiency.
4.3.5 The parties will communicate with each other as to the progress of
their respective development programs, and will share with each other the
results of such programs. To the extent that such programs continue during
the [CONFIDENTIAL TREATMENT REQUESTED] following the end of the Target
Collaboration, such communication shall also continue during that period;
and the Steering Committee will continue to meet during that period as
necessary to carry out the provisions of this Section 4.3.
4.3.6 If Chiron is developing a compound for Chiron Indications pursuant to
Section 4.3.3, and Ciba, as a result of its continued testing in the Ciba
Indications, determines that it is also interested in developing such
Chiron compound for Ciba Indications, or if it becomes apparent through
other available data that the Chiron compound also has utility in the Ciba
Indications, Ciba has the right to buy in to a co-development program with
Chiron with respect to such compound. Unless otherwise agreed, the parties
will then proceed with a joint development program with further costs
shared equally, 50/50 profit sharing, and shared marketing rights, all on
commercially reasonable terms to be negotiated by the parties.
Ciba may exercise this buy in right at any time prior to [CONFIDENTIAL
TREATMENT REQUESTED] at a mutually agreed upon buy in price, to be
determined based upon each party's investment in the research and
development of such compound to the date of buy in, investment by
either party in generating preclinical and clinical data with respect
to other compounds that is useful in the development of such compound,
the risk assumed by each party to such date, and the market potential
likely to result from each party's indication rights.
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4.3.7 If Chiron wishes to engage a partner to develop any compound under
this Section 4.3, Chiron agrees to offer Ciba the right of first
negotiation to co-develop such compound.
4.3.8 (a) Ciba shall make a milestone payment of [CONFIDENTIAL TREATMENT
REQUESTED] on [CONFIDENTIAL TREATMENT REQUESTED].
(b) For Ciba EDCs, which are developed exclusively by Ciba, the following
milestone payments shall be made by Ciba to Chiron:
- [CONFIDENTIAL TREATMENT REQUESTED]
and
- [CONFIDENTIAL TREATMENT REQUESTED]
For clarity of understanding, the milestones referred to in Section
4.3.8(a) and (b) shall each be payable only once for each
compound; such that the maximum aggregate milestone payments for a
single compound will be [CONFIDENTIAL TREATMENT REQUESTED].
(c) Chiron will not be required to pay milestones with respect to its
EDCs or Chiron Products.
(d) For each Ciba Product, Ciba shall pay to Chiron royalties on Net
Sales made by Ciba, its Affiliates or licensees, at the rate
of [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales if aggregate
annualized worldwide Net Sales for that Ciba Product do not
exceed [CONFIDENTIAL TREATMENT REQUESTED], and [CONFIDENTIAL
TREATMENT REQUESTED] of Net Sales if aggregate annualized
worldwide Net Sales for that Ciba Product exceed
[CONFIDENTIAL TREATMENT REQUESTED].
For Chiron Products, Chiron shall pay to Ciba royalties at the rate
of [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales made by
Chiron, its Affiliates or licensees.
In the event that, on a country by country basis, a Ciba Product or
a Chiron Product is not covered by a patent which prevents the
lawful manufacture, use or sale of such product by a third party,
or the relevant patent has expired, the royalties otherwise
payable hereunder with respect to the sale of such Ciba Product
or Chiron Product in such country shall be reduced by
[CONFIDENTIAL TREATMENT REQUESTED].
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Should either party have to pay royalties to a third party under an
issued valid claim of a third party patent which is infringed
by the manufacture or sale of a Ciba Product or a Chiron
Product, including royalties payable to third parties pursuant
to Sections 3.2.2, 3.2.3 or 4.1.3, [CONFIDENTIAL TREATMENT
REQUESTED] of the royalties payable to such third party shall be
deducted from royalties due to Ciba or Chiron hereunder,
provided, however, that in no event shall the aggregate
reductions in royalties arising from this paragraph and/or the
preceding paragraph result in royalties on a Ciba Product of
less than [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales if
aggregate annualized worldwide Net Sales of that Ciba Product
do not exceed [CONFIDENTIAL TREATMENT REQUESTED] or less than
[CONFIDENTIAL TREATMENT REQUESTED] of Net Sales if aggregate
annualized worldwide Net Sales exceed [CONFIDENTIAL TREATMENT
REQUESTED], or in royalties on Chiron Products of less than
[CONFIDENTIAL TREATMENT REQUESTED] of Net Sales.
Royalties shall be paid until expiry of the patents on a country by
country basis or for [CONFIDENTIAL TREATMENT REQUESTED] from the
first commercial launch in each country, whichever is longer.
If "off-label" prescribing or administration of a Chiron Product or
a Ciba Product should result in a significant loss of revenue to
the other party with respect to its products developed hereunder,
the parties agree to meet and discuss whether adjustments to
royalties on either product are appropriate.
4.3.9 For the purposes of this Section 4.3, a Ciba Product or a Chiron
Product includes all products containing the same active compound, or a
compound which is a derived from the active compound (such as a different
salt, ester, crystal form or the like), regardless of other differences,
such as dose, dosage form, indication and the like.
4.3.10 Unless the parties are engaged in co-development of a compound, each
party agrees to use commercially reasonable diligence to develop and
commercialize at [CONFIDENTIAL TREATMENT REQUESTED] per Selected
Target, in the case of Ciba, and [CONFIDENTIAL TREATMENT REQUESTED]
in the case of Chiron. Each party will keep the other informed of
its development of products under this Section 4.3, not less
frequently once per year. In the event that Ciba fails to
diligently pursue development and commercialization of
[CONFIDENTIAL TREATMENT REQUESTED] per Selected Target, Ciba
shall either abandon such Selected Target pursuant to Section 4.2.6,
or invite Chiron to participate in the co-development of compound(s)
for such Selected Target. In the event that Chiron fails to pursue
diligently the development and commercialization of [CONFIDENTIAL
TREATMENT REQUESTED] Chiron shall either abandon such product or
invite Ciba to participate in co-development of compound(s) for such
Selected Target.
4.4 COMPOUNDS NOT ACHIEVING RESEARCH COMPOUND STATUS
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The arrangements set out in Section 4.3 shall not apply to any compounds
that do not achieve Research Compound status or above by the end
of the [CONFIDENTIAL TREATMENT REQUESTED] period following the end of
the Target Collaboration. At the end of such [CONFIDENTIAL TREATMENT
REQUESTED] period, the parties will meet and inventory all compounds
at or near Research Compound stage or above, and the indications
thereof, being pursued by either party under this Agreement at that
time. Either party will be free to develop and commercialize any
compounds arising from this Collaboration which are not at least at
or near Research Compound stage at the end of such [CONFIDENTIAL
TREATMENT REQUESTED] period, without royalty or milestone obligations
to the other party; provided that (i) Ciba agrees not to pursue such
compounds for Third Party Excluded Targets identified at the time of
such inventory; and (ii) for an additional [CONFIDENTIAL TREATMENT
REQUESTED], neither party will pursue any such compounds for any
indications of compounds being pursued by the other party under this
Agreement, as identified in such inventory.
4.5 PRODUCTS DEVELOPED INDEPENDENTLY OF THE TARGET COLLABORATION
The provisions of this Article 4 shall not apply to any compounds developed
independently by Ciba, by Chiron or by a third party, prior to or
after the term of the Target Collaboration, or during such term to the
extent permitted under Section 4.2.1, so long as such independent
development is without the use of data or information arising from the
Target Collaboration.
4.6 TITLE TO NEW INVENTIONS AND PATENT RIGHTS
4.6.1 New inventions and discoveries shall be owned as follows:
(a) All Compound Patents based on inventions or discoveries made pursuant
to the Target Collaboration shall be owned [CONFIDENTIAL TREATMENT
REQUESTED]. Each party shall require its employees, agents, and
consultants to assign any such inventions [CONFIDENTIAL TREATMENT
REQUESTED], as of the date the invention was made.
(b) Library Patents with respect to Chiron Combinatorial Libraries shall
be owned by Chiron; Library Patents with respect to Ciba
Combinatorial Libraries shall be owned by Ciba; and Library Patents
with respect to Joint Combinatorial Libraries shall be owned by the
parties jointly.
(c) All inventions or discoveries made pursuant to the Target
Collaboration which do not result in Compound Patents or Library
Patents, but are inventions within the Technology Transfer Field
shall be governed by Section 3.4.1.
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(d) All inventions or discoveries which are not governed by Section 3.4.1
or by the remaining provisions of this Section 4.6.1 shall be
owned based on inventorship, as determined in accordance with
United States patent law.
4.6.2 Patents and patent applications shall be drafted, filed, prosecuted
and maintained by the party owning the patent rights. The parties shall
agree which party is to draft, file, prosecute and maintain joint patents
on a case-by-case basis. In all cases, each party shall keep the other
party informed as to the status and progress of all relevant patents and
patent applications; and shall draft, file, prosecute and maintain joint
patents and patent applications in consultation with the other party.
4.6.3 The parties shall be jointly responsible for all expenses associated with
the filing, prosecution and maintenance of joint patents, including
Compound Patents.
4.7 LICENSES
4.7.1 Subject to the terms and conditions of this Agreement, Chiron hereby
grants the following licenses to Ciba:
(a) A worldwide exclusive license, without right to sublicense, during
the term of the Target Collaboration, under Chiron
Library Patents and Chiron know-how and trade secrets relating to
Chiron Combinatorial Libraries, to screen Chiron Combinatorial
Libraries against the Selected Targets. Such license shall
automatically terminate as to Selected Targets which are
abandoned by Ciba.
(b) A worldwide exclusive license under Chiron's interest in Compound
Patents to develop, make, have made, use and sell Ciba
Products. Ciba shall have the right to grant sublicenses under
such license to Affiliates of Ciba, and to third parties;
provided that Ciba's rights to sublicense the manufacture or sale
of Ciba Products to third parties shall be subject to the terms
and conditions of the Cooperation Agreement.
4.7.2 Subject to the terms and conditions of this Agreement, Ciba hereby
grants the following licenses to Chiron:
(a) A worldwide, non-exclusive license, without right to sublicense,
during the term of the Target Collaboration, under Ciba Library
Patents and Ciba know-how and trade secrets related to Ciba
Combinatorial Libraries, to screen Ciba Combinatorial Libraries
against Selected Targets pursuant to the Target Collaboration.
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(b) A worldwide exclusive license under Ciba's interest in Compound
Patents to develop, make, have made, use and sell
Chiron Products. Chiron shall have the right to grant
sublicenses under such licenses to Affiliates of Chiron, and to
third parties; provided that Chiron's rights to sublicense the
manufacture or sale of Chiron Products to third parties shall be
subject to the terms and conditions of the Cooperation
Agreement.
(c) With respect to Selected Targets abandoned by Ciba, Ciba shall
assign to Chiron its interest in any Compound Patents, use
patents or any other patents arising from the Compound Data to
Chiron. Chiron shall retain the exclusive right, under all such
patents, to make, have made, use and sell products directed
against the abandoned Target, with right to sublicense to Chiron
Affiliates or third parties, all in accordance with Section
4.2.10. In the event that compounds identified pursuant to the
Target Collaboration as active against the abandoned Target were
made by Ciba prior to the execution of this Agreement, Ciba shall
grant to Chiron a worldwide exclusive license to make, have made,
use and sell such compounds in Chiron Products against the
abandoned Target. Ciba shall retain rights to such compounds for
use other than against the abandoned Target.
4.8 USE OF COMBINATORIAL LIBRARIES
4.8.1 The parties acknowledge that the Chiron Combinatorial Libraries
screened pursuant to the Target Collaboration will also be screened by
Chiron, its Affiliates and contractors, and by third parties outside this
collaboration. The rights of the parties with respect to compounds
identified through this collaboration will be subject to rights arising as
a result of such use of the libraries outside this collaboration. The
parties agree that the determination of ownership, patent and license
rights to compounds contained in Chiron Combinatorial Libraries shall be
based on the first to invent the subject matter in question, as determined
under U.S. Patent Law. Except as expressly stated in Section 3.5 or
Section 4.7, no implied rights or licenses are granted hereunder to any
inventions or patent rights arising outside this Agreement, including
without limitation rights under dominating patent claims. The following
principles shall apply.
(a) Ciba agrees to notify Chiron in writing as soon as possible following
identification of any Compound Hit. Chiron shall be entitled to
rely on the content and timing of receipt of notices of
identification of compounds received from all users of Chiron
Combinatorial Libraries as evidence of which party is first to
invent and in determining whether conflicts exist.
(b) If, at any time, Chiron believes in good faith that a conflict exists
among parties who are each entitled to exclusive rights to
compounds contained in Chiron Combinatorial Libraries, with respect
to patent applications filed or to be filed by
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Chiron, Chiron shall notify each party involved of the existence of
the conflict, the claims of such party which are involved, and the
identity of (but not the specific compounds or claims of) the other
party. Ciba hereby consents to such notification under Article 9
hereof. Chiron shall not be required to take any action in filing
new patent applications or amending existing applications with
respect to the conflicting subject matter, except on instructions
approved by both parties to the conflict. However, Chiron shall
have the right, but not the obligation, to take such actions as
Chiron believes in good faith will protect the rights of both
parties to the conflict, pending receipt of such jointly approved
instructions (e.g. filing potentially conflicting applications,
combining conflicting subject matter into a CIP application, filing
continuations of applications to prevent double patenting rejections
of another application, etc.)
4.8.2 Ciba retains the right to use Ciba Combinatorial Libraries (and any
other libraries owned by Ciba) outside the Target Collaboration; and
Chiron retains the right to use Chiron Combinatorial Libraries (and any
other libraries owned by Chiron) outside the Target Collaboration, in
each case without restriction, except as expressly provided herein.
4.8.3 Each party shall have the right to use Joint Combinatorial Libraries
outside the Target Collaboration, subject to the following conditions:
(a) Ciba shall not use any Joint Combinatorial Library in connection
with Third Party Excluded Targets, determined as of the time of
creation of the Joint Library.
(b) In the event that either party (the "providing party") reasonably
believes that its strategic proprietary rights to components
which such party provided for a Joint Combinatorial Library would
be jeopardized by use of such library by a third party, the
providing party may preclude third party use of such Joint
Combinatorial Library, or the parts thereof containing such
proprietary component, without the prior consent of the providing
party. The providing party will notify the other party of any
such intended restrictions at the time of the design or
development of the Joint Combinatorial Library, and in any event
at the request of the other party prior to the use of the Joint
Combinatorial Library outside the Target Collaboration.
(c) In the event of use of a Joint Combinatorial Library outside the
Target Collaboration by one party, the parties shall reasonably
and mutually determine if the other party should be entitled to a
royalty on products arising from such use. Such royalty, if any,
shall be at a rate between [CONFIDENTIAL TREATMENT REQUESTED] of
Net Sales, to be mutually determined, based on such factors as
the uniqueness of the library or the proprietary nature of its
components. At the time of determination of the royalty rate,
the parties will also determine the time period during which use
of the Joint Library will result in a
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royalty on products arising from such use, which time period will
be reassessed by the parties three years following the end of the
Target Collaboration.
5 PATENT ENFORCEMENT
5.1 In general, the owner of any patent shall have the right to enforce such
patent against third parties at the owner's expense, and the owner shall
be entitled to all recoveries. In the case of jointly owned patents, the
parties shall mutually determine how to proceed.
5.2 Each party shall notify the other party of any third party infringement
activity of which it becomes aware; and each party shall reasonably
cooperate with the other party in connection with the enforcement of
patent rights pursuant to this Article 5.
6 INDEMNITY; NO WARRANTIES
6.1 In the event that a Ciba Product or a Chiron Product is developed solely by
Ciba or solely by Chiron, under the terms of this Agreement, or in the
event that either party develops a product outside this collaboration
under licenses granted under this Agreement, the developing party agrees
to indemnify, defend and hold harmless the non-developing party and its
Affiliates, and their respective officers, directors, shareholders, and
employees, from and against all claims, losses, costs, damages and
liability of any kind, including without limitation attorneys fees,
(collectively "Liabilities") arising in connection with the development,
manufacture, use or sale of such product, except for Liabilities arising
as a result of breach by the non-developing party of its obligations
under this Agreement, or any manufacturing, marketing or other agreement
with respect to the product in question. The indemnified party shall not
make any admission of liability nor take any other action which could
prejudice the defence of such claim or lawsuit by the indemnifying party.
6.2 In the event that a product is co-developed by both parties pursuant to
this Agreement, each party (the "indemnifying party") agrees to
indemnify, defend and hold harmless the other party and its Affiliates,
and their respective officers, directors, shareholders, and employees,
(collectively, the "indemnified party"), from and against all Liabilities
arising from the wilful misconduct, failure to comply with applicable
law, regulation or government order, or breach of this Agreement, or any
related agreements, by the indemnifying party in connection with the
development, manufacture, use or sale of such product.
In the event that any Liability arises in connection with the development,
manufacture, use or sale of such a product which is not covered by
the previous paragraph, the party sued shall be responsible for its own
defense at its own expense. Such party shall be entitled to deduct the
cost of such defense, as well as all damages or other amounts paid in
settlement or
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disposition of such matter, from Net Sales of the product in question
prior to the allocation of the profits between the parties.
6.3 In all cases, the indemnified party shall promptly notify the indemnifying
party of receipt of any claim or lawsuit subject to Section 6.1 or 6.2,
and shall cooperate with the indemnifying party in connection with the
investigation and defense of such claim or lawsuit. The indemnifying
party shall have the right to control the defense, with counsel of its
choice, provided that the indemnified party shall have the right to be
represented by advisory counsel at its own expense. The indemnifying
party shall not settle or dispose of the matter in any manner which could
affect the rights or liability of the indemnified party without the
indemnified party's prior written consent, which shall not be
unreasonably withheld.
6.4 EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY, AND EACH PARTY EXPRESSLY DISCLAIMS ALL DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO ANY COMBINATORIAL LIBRARIES OR OTHER
BIOLOGICAL OR CHEMICAL MATERIALS OR INFORMATION PROVIDED TO THE OTHER
PARTY PURSUANT TO THIS AGREEMENT.
Each party acknowledges that all Combinatorial Libraries and other
biological or chemical materials provided by the other party pursuant to
this Agreement are experimental and agrees to take reasonable
precautions to prevent personal injury, illness and/or property damage
with respect to its handling and use thereof.
7 PAYMENTS AND ACCOUNTING
7.1 All payments hereunder shall be made in U.S. Dollars.
7.2 Each party shall keep true and correct accounts of sales of all products in
respect of which royalties are payable to the other party pursuant to
this Agreement, and the calculation of Net Sales and royalties with
respect thereto, and shall deliver to the other party written statements
thereof in such form as both shall agree upon within sixty (60) days
following the end of each calendar quarter and at the same time shall pay
to the other party the amount of such royalties shown to be due.
7.3 All royalties shall be earned in the local currency of the country where
the applicable Net Sales are made, but shall be converted for payment
into U.S. Dollars, in accordance with the standard procedures used by the
paying party in converting currencies of worldwide product sales for its
products generally.
<PAGE>
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If royalties cannot be remitted from a country, the parties will work
together to arrive at an equitable solution for paying such royalties
to the other party.
Any withholding or other tax that the paying party is required by law to
withhold and pay on behalf of the other party with respect to the
royalties payable to the other party under this Agreement shall be
deducted from said royalties and paid contemporaneously with the
remittance to the other party; provided, however, that in regard to
any tax so deducted, the paying party shall furnish the other party
with proper evidence of the taxes paid on its behalf.
7.4 Each party shall have the right to have an independent certified public
accountant of its own selection and at its own expense,
except one to whom the other party may have reasonable objection,
examine the relevant books and records of account of the other party
during reasonable business hours, to determine whether appropriate
accounting and payment have been made hereunder. Said independent
certified public accountant shall treat as confidential, and shall not
disclose to party requesting the audit, any other information not
pertaining to the royalty amounts payable under this Agreement. Such
examination can be undertaken at any time within two years after the
date on which such royalty amounts were due and payable.
8 PUBLIC ANNOUNCEMENTS
The parties will mutually agree on a press release to be issued upon
execution of this Agreement. Neither party shall make any subsequent
public announcement concerning the terms of this Agreement not
previously made public without the prior written approval of the other
party with regard to the form, content and precise timing of such
announcement, except such as may be required to be made by either party
in order to comply with applicable law, regulations or court orders.
Such consent shall not be unreasonably withheld or delayed by the other
party. Prior to any such public announcement, the party wishing to make
the announcement will submit a draft of the proposed announcement to the
other party in sufficient time to enable the other party to consider and
comment thereon. Nothing in this section shall preclude disclosures by
either party to third parties under confidentiality restrictions in
order to carry out the purposes of this Agreement or to define the scope
of rights which may be granted to a third party without violating this
Agreement.
9 CONFIDENTIALITY
9.1 Except as specifically authorized under the terms of this Agreement each
party shall, for the term of this Agreement and for five (5) years after
its termination for any reason whatsoever, treat any proprietary
information disclosed to it by the other party as strictly confidential,
<PAGE>
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and shall not disclose such proprietary information to third parties or
use it for purposes other than those authorized herein.
Except as set forth in the exceptions hereinafter any information, data or
material, including without limitation, software, technology, business
plans or information, communicated to the other which is identified as
confidential, or which the other party has reason to believe is
confidential, will be deemed and treated as Proprietary Information.
Proprietary Information also includes proprietary chemical, physical or
biological materials exchanged pursuant to this Agreement. Access to such
Proprietary Information will be limited to those employees or consultants
of the party receiving such information or of such party's Affiliates or
sublicensees, who reasonably require such information in order to carry
out activities authorized pursuant to this Agreement. Such employees or
consultants will be advised of the confidential nature of the Proprietary
Information and the related confidentiality undertaking.
Proprietary Information shall not include, and the above confidentiality
undertaking shall in no event restrict or impair each party's right to
use or disclose any information which:
(a) at the time of disclosure is in the public domain or thereafter
becomes part of the public through no fault of the party receiving
such information;
(b) the party receiving such information can conclusively establish that
it was in its possession prior to the time of disclosure;
(c) is independently made available to the party receiving such
information by a third party who is not thereby in violation of a
confidential relationship with the other party; or
(d) the receiving party can establish was independently developed without
use of the Proprietary Information of the other party.
The receiving party shall not be restricted from disclosing such
information as is required to be disclosed by law, regulation, or court
or governmental order, provided that the receiving party reasonably
notifies the disclosing party prior to such disclosure of such
requirement.
Upon termination of this Agreement, and provided the Proprietary
Information is still of a confidential nature, the party recipient of the
Proprietary Information will upon request from the disclosing party
either return any such information or destroy the same.
9.2 Information which is developed in the course of the Target Collaboration,
and which is not within any of the exceptions to Proprietary Information
set forth in Section 9.1, may be used by the parties outside the Target
Collaboration as set forth in Article 4. To the extent
<PAGE>
-39-
permitted by Article 4, such information may be disclosed to third
parties, subject to confidentiality obligations not less restrictive than
those set forth in Section 9.1.
Neither party will publish or publicly disclose results arising from the
Target Collaboration without the prior consent of the other party, which
consent shall not be unreasonably withheld. Each party agrees to provide
to the other a copy of any proposed publication or public disclosure of
such results for review and comment, at least forty-five (45) days prior
to release for publication or disclosure.
10 TERM AND TERMINATION
10.1 The Target Collaboration shall have the term set forth in Article 4.
10.2 Unless terminated earlier under Section 10.3, this Agreement shall continue
in full force and effect until the expiration of all annual payment,
milestone or royalty obligations of either party under Articles 3 and 4,
and the expiration of all obligations with respect to co-development or
profit sharing under Article 4. Upon expiration of this Agreement under
this Section 10.2, the parties shall each have fully paid-up licenses,
respectively, under Sections 3.5.1, 3.5.2, 4.7.1(b) and 4.7.2(b) and (c);
and the provisions identified in Section 10.3(e) shall survive expiration
hereof.
10.3 (a) In the event of material breach of this Agreement by either party,
which is not cured within sixty (60) days following receipt of
written notice of the alleged default from the non-breaching party,
the matter shall be submitted for resolution to the chief executive
officers of each party.
(b) The parties acknowledge that under this Agreement, each party holds a
complex series of ongoing technology rights and licenses,
development rights and obligations, and economic rights and
obligations, the breach of which may not be adequately compensated
in monetary damages alone. The parties therefore agree that each
may be entitled to remedies in the nature of specific performance of
the obligations of the other.
(c) Each party further waives the right to terminate this Agreement in its
entirety in the event of breach by the other party, except
in the event that termination (i) is mutually agreed upon by the
parties, or (ii) is ordered by a court of competent jurisdiction,
after consideration of all relevant rights and obligations of the
parties under the Agreement, and the rights and remedies of the non-
breaching party in law or equity, including, without limitation,
the extent to which the non-breaching party can be adequately
protected through remedies other than complete termination of the
Agreement.
<PAGE>
-40-
(d) In the event of termination of this Agreement pursuant to this Section
10.3, unless otherwise specifically agreed or ordered
pursuant thereto, the following provisions shall survive
termination, together with any and all rights and obligations
accrued prior to the date of termination:
(i) To the extent Ciba has paid in full all of its obligations under
Article 3: Section 3.5.1;
(ii) To the extent applicable to any development candidates or
products which remain under development
or commercialization by either party following such
termination: Sections 4.3, 4.7.1(b), 4.7.2(b) and (c), and
7; and
(iii) In addition to those set forth in Section 10.3(d)(i) or (ii),
the following Sections shall survive any early termination
of this Agreement: 3.5.2 and the provisions identified in
Section 10.3(e) below.
(e) The following provisions shall survive any expiration or early
termination of this Agreement, together with any other obligations
of either party which have accrued as of the effective date of
termination or expiration: Sections 3.4, 3.5.3, 4.2.7, 4.2.10,
4.2.11, 4.4, 4.5, 4.6, 4.8, and Articles 5, 6, 8, 9, 10 and 11.
10.4 All licenses granted under this Agreement are deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code, licenses of right to
"intellectual property" as defined in Section 101 of such Code. The
parties agree that the licensee may fully exercise all of its rights
and elections under the Bankruptcy Code. The parties further agree
that, in the event a licensee elects to retain its rights as a
licensee under such Code, the licensee shall be entitled to complete
access to any technology licensed to it hereunder and all embodiments
of such technology. Such embodiments of the technology shall be
delivered to the licensee not later than (a) the commencement of
bankruptcy proceedings against the licensor, upon written request,
unless the licensor elects to perform its obligations under this
Agreement, or (b) if not delivered under (a) above, upon the
rejection of this Agreement by or on behalf of the licensor, upon
written request.
10.5 IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOST PROFITS OR
ANY CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES TO THE OTHER PARTY,
HOWEVER CAUSED, IN CONNECTION WITH THIS AGREEMENT; PROVIDED THAT
NOTHING IN THIS SECTION 10.5 SHALL LIMIT THE INDEMNIFICATION
OBLIGATIONS OF EITHER PARTY PURSUANT TO ARTICLE 6 AS TO CONSEQUENTIAL,
INCIDENTAL OR INDIRECT DAMAGES TO THIRD PARTIES FOR WHICH THE
INDEMNITEE MAY BE LIABLE.
<PAGE>
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11 MISCELLANEOUS
11.1 Neither party shall have the right to assign its rights or obligations
under this Agreement to any third party other than an Affiliate of such
party without the prior written consent of the other party, which consent
shall not be unreasonably withheld. This Agreement shall be binding on,
and inure to the benefit of, the permitted successors and assigns of the
parties.
11.2 Pursuant to this Agreement, each party has certain rights to grant
sublicenses hereunder to Affiliates and, in some cases, to third
parties. In addition, it is contemplated that each party may wish to
involve one or more of its Affiliates in research and development
activities conducted by such party pursuant to this Agreement.
(i) Neither party shall transfer or disclose to any of its Affiliates (a)
any Proprietary Information of the other party, including,
without limitation, technology, improvements, Combinatorial
Libraries, or other chemical or biological materials, or (b) any
Joint Combinatorial Libraries, or (c) any data or information with
respect to, or arising from, any of the foregoing; unless such
Affiliate has agreed in writing to be bound by all of the terms and
conditions of this Agreement as though the Affiliate were a party
hereto.
(ii) All permitted sublicenses and/or assignments by either party of any of
its rights under this Agreement shall be subject to all of the
terms and conditions of this Agreement, which shall be binding on
the sublicensees and/or assignees.
11.3 The parties hereto are independent contractors. Nothing contained herein
shall constitute either party the agent of the other party for any
purpose whatsoever, or constitute the parties as partners or joint
venturers. Employees of each party remain employees of said party and
shall be considered at no time agents of or render a fiduciary duty to
the other party. Neither party hereto shall have any implied right or
authority to assume or create any obligations on behalf of or in the name
of the other party or to bind the other party to any other contract,
agreement or undertaking with any third party.
11.4 No amendment, waiver or modification of this Agreement shall be valid or
binding on either party unless made in writing signed by both parties.
The failure of either party to enforce any provision of this Agreement at
any time shall not be construed as a present or future waiver of such or
any other provision of this Agreement. The express waiver by either
party of any provision or requirement hereunder shall not operate as a
future waiver of such or any other provision or requirement.
<PAGE>
-42-
11.5 In the event that any provision in this Agreement shall be held to be
unlawful or invalid in any jurisdiction, the meaning of such provision
shall be construed to the greatest extent possible so as to render it
enforceable. If no such construction can render such provision
enforceable, it shall be severed, and the remainder of the Agreement
shall remain in full force and effect, only to the extent that such
remainder is consistent with the intentions of the parties as evidenced
by this Agreement as a whole. The parties shall use best efforts to
negotiate in good faith a reasonable substitute, valid and enforceable
provision effective in such jurisdiction.
11.6 Any notice required or permitted to be given by either party under this
Agreement shall be in writing, addressed, in the case of Chiron, to its
Chief Executive Officer, with copy to its General Counsel, and in the
case of Ciba, to its head of the Pharma Division, with copy to its
General Counsel, at the respective addresses of the parties shown in
the first paragraph of this Agreement, or such other address as may
from time to time by indicated in a notice given under this Section
11.5. All notices shall be sent by certified or registered first class
mail, telefax confirmed by certified or registered first class mail, or
personal delivery, and shall be effective on receipt at the address
referenced above.
11.7 Neither party will be deemed in breach of this Agreement as a result of
default, delay or failure to perform by such party which is due to
causes beyond the reasonable control of such party, including without
limitation, fire, earthquake, acts of God, severe weather, acts of war,
strikes, lockouts or other labor disputes, riots, civil disturbances,
actions or inactions of governmental authorities (except in response to
a breach by such party), or epidemics. In the event of any such force
majeure, the party affected shall promptly notify the other party, shall
use all reasonable efforts to overcome such force majeure, and shall
keep the other party informed with respect thereto.
11.8 All headings and captions used in this Agreement are for convenience
only, and are not intended to have substantive effect.
11.9 This Agreement may be executed by the parties in one or more identical
counterparts, all of which together shall constitute this Agreement.
11.10 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
11.11 This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes all previous
agreements, understandings and negotiations, whether oral or
written, with respect to such subject matter.
<PAGE>
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Executed and effective as of the date first set forth above.
CIBA-GEIGY Limited
By: R. Paioni By: R.E. Walker
------------------------- ---------------------------
Title: Head of Pharma Licensing Title: Division Counsel
------------------------- -------------------------
CHIRON CORPORATION
By: Walter Moos
---------------------------
Title: Vice President
-------------------------
<PAGE>
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EXHIBIT A
THIRD PARTY EXCLUDED TARGETS
1 page
[CONFIDENTIAL TREATMENT REQUESTED]
EXHIBIT B
CHIRON TECHNOLOGY
17 pages
[CONFIDENTIAL TREATMENT REQUESTED]
EXHIBIT C
CHIRON COMBINATORIAL CHEMISTRY PATENTS
2 pages
[CONFIDENTIAL TREATMENT REQUESTED]
EXHIBIT D
RESTRICTED TARGETS
1 page
[CONFIDENTIAL TREATMENT REQUESTED]
EXHIBIT E
PROHIBITED INDICATIONS
1 page
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
PROMISSORY NOTE
as Amended and Restated
$50,760,000 New York, New York
January 1, 1995
FOR VALUE RECEIVED, the undersigned, CIBA CORNING DIAGNOSTICS CORP., a
Delaware corporation ("DIAGNOSTICS"), hereby promises to pay to the order of
CIBA-GEIGY LIMITED, a Swiss Corporation ("CIBA"), an amount equal to Fifty
million seven hundred sixty thousand Dollars ($50,760,000). The entire
principal amount outstanding on this Note shall be repaid on January 1, 2000 (or
if such date is not a Business Day on the next succeeding Business Day).
Interest shall be payable on the same date as the principal amount, as provided
above, at an interest rate determined in accordance with the next paragraph of
this Note on the outstanding balance of the Note (computed on the basis of the
actual number of days principal is outstanding from and including the date
hereof, to but excluding the date of repayment, in a year of 365 days) and
compounded on a semi-annual basis. All payments shall be made in lawful money
of the United States of America in immediately available funds to Ciba at Swiss
Bank Corporation, New York, NY, Account Number 0-452-702625-00 or such other
account as Ciba may designate in writing. Payments received for value after
3:00 p.m., New York City time, shall be treated as being received on the next
succeeding Business Day.
During the period that (i) there are loans outstanding under the
credit facility (the "CREDIT FACILITY") referred to in Section 5.12 of the
Investment Agreement dated as of November 20, 1994, among Ciba, Ciba-Geigy
Corporation, a New York corporation, CIBA Biotech Partnership Inc., a Delaware
corporation, and Chiron Corporation, a Delaware corporation ("CHIRON"), the
interest rate per annum on the outstanding balance of this Note shall be the
weighted average interest rate per annum for all outstanding loans to Chiron
under the Credit Facility and the interest rate hereunder shall be adjusted from
time to time simultaneously with any adjustment of such interest rate under the
Credit Facility and (ii) there are no loans outstanding under the Credit
Facility, the interest rate per annum on the outstanding balance of this Note
shall be a floating rate at all times during each calendar quarter during such
period equal to LIBOR plus 0.20%. During such
<PAGE>
2
times that the interest rate is determined in accordance with clause (i) of the
preceding sentence, Diagnostics shall notify Ciba in writing within 30 Business
Days of the end of each calendar quarter (or, with respect to the last calendar
quarter prior to the maturity of this Note, by the end of such calendar quarter)
of the information necessary to determine such interest rate and, promptly
thereafter, Ciba shall advise Diagnostics in writing of its determination of
such interest rate, and Ciba's determination thereof shall be final absent
manifest error. During such times that the interest rate is determined in
accordance with clause (ii) of the preceding sentence, Ciba, on the first
business Day of each calendar quarter, shall advise Diagnostics in writing of
its determination of such interest rate (including any resetting thereof in
accordance with the definition of LIBOR), and Ciba's determination thereof shall
be final absent manifest error.
Time shall be of the essence with regard to the repayment to Ciba of
all sums due and payable under this Note.
Diagnostics promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
date at the rate of 10% per annum, compounded quarterly (the "DEFAULT RATE").
Diagnostics also agrees to pay on demand all costs and expenses of collecting
and enforcing this Note incurred by Ciba or any assignee. Such costs and
expenses include, without limitation, reasonable costs of counsel. Interest
shall accrue on unpaid costs and expenses from the date of demand to the date
of payment at the Default Rate.
Anything herein to the contrary notwithstanding, if during any period
for which interest in computed hereunder, the amount of interest computed on the
basis provided for in this Note, together with all fees, charges and other
payments which are treated as interest under applicable law, as provided for
herein or in any other document executed in connection herewith, would exceed
the amount of such interest computed on the basis of the Highest Lawful Rate (as
defined below), Diagnostics shall not be obligated to pay, and Ciba shall not be
entitled to charge, collect, receive, reserve or take, interest in excess of the
Highest Lawful Rate, and during any such period the interest payable hereunder
shall be computed on the basis of the Highest Lawful Rate. As used herein,
"HIGHEST LAWFUL RATE" means the maximum non-usurious rate of interest, as in
effect from time to time, which may be charged, contracted
<PAGE>
3
for, reserved, received or collected by Ciba in connection with this Note under
applicable law.
Capitalized terms appearing in this Note if not defined in the
operative paragraph hereof are defined in the DEFINITIONS section appearing at
the end of this Note.
Diagnostics has the right at any time and from time to time to prepay
principal and any accrued unpaid interest thereon, in whole or in part, upon at
least five day's prior written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to Ciba with a copy to Swiss Bank
Corporation. Any such prepayments shall be applied, first, against any accrued
unpaid interest then outstanding under the Note and, second, against the
principal amount then outstanding under the Note as of the date of such
prepayment. Prepayment of any amount of the principal of or interest on this
Note shall in no way extend the date of maturity. Such amounts prepaid may not
be reborrowed.
Diagnostics hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the holder or assignee of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
The payment and any prepayments of the principal hereof and interest
hereon and the respective dates thereof shall be endorsed by the holder hereof
on the schedule attached hereto and made a part hereof or on a continuation
thereof which shall be attached hereto and made a part hereof, or otherwise
recorded by such holder in its internal records; PROVIDED, HOWEVER, that the
failure of the holder hereof to make such a notation or any error in such
notation shall not affect the obligations or Diagnostics under this Note.
COVENANTS
Diagnostics covenants and agrees with Ciba that, so long as any
principal or interest under this Note (or cost or expense of collecting or
enforcing this Note) shall be unpaid, unless (i) Chiron agrees to guarantee the
principal and interest payable under this Note pursuant to an agreement
satisfactory in form and substance to Ciba or (ii) Ciba shall otherwise consent
in writing, Diagnostics
<PAGE>
4
will not, and will not cause or permit any of its subsidiaries to:
(a) Create, incur, assume or permit to exist any Lien on any property
or assets (including stock or other securities of any person, including any
subsidiary) now owned or hereafter acquired by it or on any income or
revenues or rights in respect of any thereof, (x) except to the extent the
obligations of Diagnostics under this Note are equally and ratably secured
by such property or assets pursuant to documentation in form and substance
reasonably satisfactory to Ciba and (y) except:
(i) Liens on property or assets of Diagnostics and its
subsidiaries existing on the date hereof; PROVIDED that such Liens
shall secure only those obligations which they secure on the date
hereof;
(ii) any Lien existing on any property or asset prior to the
acquisition thereof by Diagnostics or any subsidiary; PROVIDED that
(x) such Lien is not created in contemplation of or in connection with
such acquisition and (y) such Lien does not apply to any other
property or assets of Diagnostics or any subsidiary;
(iii) Liens for taxes not yet due or which are being contested;
(iv) carriers', warehousemen's, mechanic's, materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due or which are being
contested;
(v) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(vi) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than capital lease
obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
<PAGE>
5
(vii) zoning restrictions, easements, rights-of-way, restrictions
on use of real property and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not
substantial in amount and do not materially detract from the value of
the property subject thereto or interfere with the ordinary conduct of
the business of Diagnostics or any of its subsidiaries;
(viii) purchase money security interests in real property,
improvements thereto or tangible personal property hereafter acquired
(or, in the case of improvements, constructed) by Diagnostics or any
subsidiary; PROVIDED that (A) such security interests are incurred,
and the Indebtedness secured thereby is created, within 90 days after
such acquisition (or construction), (B) the Indebtedness secured
thereby does not exceed 100% of the lesser of the cost or the fair
market value of such real property, improvements or equipment at the
time of such acquisition (or construction) and (C) such security
interests do not apply to any other property or assets of Diagnostics
or any of its subsidiaries;
(ix) Liens on any property or assets of Diagnostics' foreign
subsidiaries; PROVIDED, that Diagnostics and its U.S. subsidiaries
shall not transfer property or assets to Diagnostics' foreign
subsidiaries for the purpose of avoiding the prohibition of this
paragraph (a);
(x) judgment Liens, if, within 60 days after the entry thereof,
the judgment secured thereby shall have been discharged, vacated,
reversed or execution thereof shall have been stayed pending appeal,
or shall have been discharged, vacated or reversed within 60 days
after expiration of any such stay;
(xi) Liens to secure indebtedness from time to time outstanding;
PROVIDED, that any such indebtedness secured by Liens which are not
otherwise permitted by clauses (i) through (x) above or clause (xii)
below does not exceed $25 million in the aggregate; and
<PAGE>
6
(xii) extensions, renewals and replacements of Liens permitted
under clauses (i) through (xi) above, PROVIDED, that any such
extension, renewal or replacement Lien shall be limited to the
property encumbered by the Lien extended, renewed or replaced and
the principal amount of indebtedness secured by any such extension,
renewal or replaacement Lien shall not exceed the principal amount
of the indebtedness secured by the Lien extended, renewed or replaced
which is outstanding at the time of such extension, renewal or
replacement.
(b) Cause, through any action or otherwise (including the declaration
or making of any dividend or distribution with respect to its capital stock
or through the transfer or disposition of any assets), other than through
the operation of their businesses in the ordinary course, the consolidated
shareholders' equity of Diagnostics and its consolidated subsidiaries at
any time to be less than the greater of (A) $84 million and (B) the sum of
X minus Y minus Z, where X equals $135 million, Y equals the amount of any
purchase accounting adjustments to Diagnostics' consolidated shareholders'
equity arising out of the transactions contemplated by the Investment
Agreement, and Z equals the amount of any reductions in Diagnostics'
consolidated shareholders' equity arising out of any agreement with Ciba by
Chiron to assume sponsorship of or any liability under any defined benefit
pension plan or any supplemental retirement plan covering employees of
Diagnostics or its subsidiaries (all as determined in accordance with U.S.
generally accepted accounting principles consistently applied).
<PAGE>
7
EVENTS OF DEFAULT
In case of the happening of any of the following events ("EVENTS OF
DEFAULT"):
(a) Chiron or Diagnostics shall assert, or a court of competent
jurisdiction shall determine pursuant to a final, nonappealable judgment,
that this Note (subject to applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws affecting creditors'
rights generally) shall not be enforceable in accordance with its terms;
(b) a failure to perform or observe any term, covenant or agreement
contained above under the caption "COVENANTS" in this Note, which failure
is not cured within 30 days of such failure;
(c) a failure to perform or observe any term, covenant or agreement
contained in this Note (other than those referred to in the preceding
clause (b)), which failure is not cured within 30 days of receipt by
Diagnostics of notice of such default;
(d) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of Chiron, Diagnostics or any of their Significant U.S.
Subsidiaries, or of a substantial part of the property or assets of Chiron,
Diagnostics or any of their Significant U.S. Subsidiaries, under Title 11
of the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Chiron, Diagnostics or any of their
Significant U.S. Subsidiaries or for a substantial part of the property or
assets of Chiron, Diagnostics or any of their Significant U.S.
Subsidiaries, or (iii) the winding-up or liquidation of chiron,
Diagnostics or any of their significant U.S. Subidiaries, and such
proceeding or petition is not dismissed within 60 days or an order
for relief is entered against Diagnostics, Chiron or such Significant
U.S. Subsidiary, as applicable;
(e) Chiron or its subsidiaries (except Diagnostics and its
subsidiaries) shall fail collectively to own
<PAGE>
8
more than 50% of the voting stock of Diagnostics or any successor entity;
and
(f) Chiron, Diagnostics or any of their Significant U.S. Subsidiaries
shall (i) voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of
any petition described in (d) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for Chiron, Diagnostics or any of their Significant U.S.
Subsidiaries or for a substantial part of the property or assets of Chiron,
Diagnostics or any of their Significant U.S. Subsidiaries, (iv) file an
answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing;
then, and in every such event (other than an event with respect to Chiron,
Diagnostics or any of their Significant U.S. Subsidiaries described in paragraph
(d) or (f) above), and at any time thereafter during the continuance of such
event, Ciba may, by notice to Diagnostics, take the following action: declare
any and all principal or interest (and any other amounts) then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of this
Note so declared to be due and payable, together with accrued interest thereon
(and any other amounts), shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by Diagnostics, anything contained herein to the
contrary notwithstanding; and in any event with respect to Diagnostics described
in paragraph (d) or (f) above, the principal then outstanding, together with
accrued interest thereon (and any other amounts), shall automatically become due
and payable, without presentment, demand, protest or any other notice of any
kind, all of which are expressly waived by Diagnostics, anything contained
herein to the contrary notwithstanding.
<PAGE>
9
DEFINITIONS
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City.
"LIBOR" shall mean, with respect to any calendar quarter, the
arithmetic mean of the offered rates for deposits in U.S. dollars for a
principal amount closest to the principal amount outstanding at such time under
this Note for a period of 90 days which appear on the Reuters Screen LIBO Page
(on the Reuter Monitor Money Rate Service) as of 11:00 a.m., London time, on the
day that is two London banking days prior to the commencement of such calendar
quarter.
"LIEN" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Note, Diagnostics or any subsidiary of
Diagnostics shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"SIGNIFICANT U.S. SUBSIDIARY" shall mean, with respect to any person,
any subsidiary of such person that constitutes a significant subsidiary within
the meaning of Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange Commission and that is a U.S. subsidiary of such person.
This note has been amended and restated in the form hereof in order to
adjust the principal amount hereof. Notwithstanding such amendment and
restatement, this Note is made on and as of the date first above written and all
references in this Note to its date shall refer to such above written date.
<PAGE>
10
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
CIBA CORNING DIAGNOSTICS
CORP.,
by Robert L. Sullivan
----------------------
Name: Robert L. Sullivan
Title: Senior Vice President
<PAGE>
11
Payments
--------
Payments Payments Name of Person
of of Making
Principal Interest Date Notation
- --------- -------- ---- --------
<PAGE>
Exhibit 10.84
[BENEMANN TRANSLATION CENTER LETTERHEAD]
[Translator's note: the bottom of every page of the Lease is initialed by both
parties.]
COMMERCIAL LEASE
BETWEEN THE UNDERSIGNED:
DOMILYON CORPORATION, with FRF 15,000,000 in assets, which became a private
corporation on October 19, 1992,
headquartered at 321 avenue Jean Jaures, LYON 69007, LYON Trade and Company
Register registration number D 348 447 285,
Represented by Mr. Jean-Michel BONABOSCH, acting in his capacity as Director
Hereinafter "Landlord"
ON THE ONE HAND
AND
"DOMILENS LABORATORIES" corporation, with FRF 43,500,000 in assets,
headquartered at 321 avenue Jean Jaures, LYON 69007, LYON Trade and Company
Register registration number B 327 032 629,
Represented by Mr. Francois PERRARD, its Chief Executive Officer, specially
authorized to negotiate and sign this document,
Hereinafter "Tenant"
ON THE OTHER HAND
GIVEN THE FOLLOWING:
By private agreement dated January 2, 1990, DOMILYON Corporation leased DOMILENS
Corporation the premises discussed in this lease and which shall be described
hereafter. Given that extensive alterations have been carried out, the parties
have agreed to cancel this lease prior to its termination date and to enter into
a new one, the terms of which follow:
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<PAGE>
THE PARTIES HAVE AGREED UPON THE FOLLOWING:
CHAPTER 1 - GENERAL CONTRACT TERMS
*ARTICLE 1 - PURPOSE OF LEASE AND DESCRIPTION OF PREMISES
Landlord leases to Tenant, who agrees to use the premises referred to in the
"specific terms".
*ARTICLE 2 - STARTING DATE AND TERM OF LEASE
This Lease shall take effect on the date indicated in the "specific terms".
*ARTICLE 3 - INVENTORY OF PREMISES
Tenant, having previously occupied the leased premises, hereby admits knowledge
of said premises and exempts Landlord from providing a more detailed description
than that appearing in the "specific terms". Tenant accepts the premises "as
is", without the possibility of demanding any repairs or improvements.
By way of clarification, any difference between the measurements and surfaces
mentioned in this Lease or from diagrams that might be attached, and the real
dimensions of the premises, shall not justify a reduction or increase of rent,
as the parties refer to the existing "as is" condition of the premises.
If the leased premises are located in a building which has just been
constructed, Tenant shall bear the inconveniences arising from poor workmanship
and other inherent defects, even, as the case may arise, those resulting from
construction on the entire building in which they may be located, without the
possibility of claiming any compensation or rent reduction from Landlord.
Tenant agrees to allow free access to its premises to companies responsible for
performing work necessary to remedy complaints, as well as to repair problems
that might be noticed in the future.
An inventory of the premises shall be drawn up between both parties, at the
expense of Tenant within a maximum of fifteen days of Tenant's entering the
premises. Failing this, the premises shall be considered to have been leased in
perfect condition.
- --------------------------------------------------------------------------------
[N.B. It is mandatory that articles marked with an asterisk (*) be completed in
the specific terms (chapter II).]
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<PAGE>
*ARTICLE 4 - TERMS OF LEASE
1) USE AND ENJOYMENT
*The premises must be occupied exclusively for the use and purpose envisioned in
the "specific terms".
Tenant shall use the premises peacefully and in such a way not to disturb the
peace of neighbors and third parties.
Tenant must personally occupy the leased premises and may not assign possession
to anyone, in any manner, even temporarily, or free of charge or precariously.
If the leased premises are a part of a whole divided into parcels or a jointly
owned property, or a regulated zone, or constitute only a subparcel of a whole
belonging to Landlord or of a whole divided into subparcels, Tenant agrees to
respect the provisions of the "conditions of contract", the zoning regulations,
the rules of the property owners' association, the regulations of the jointly
owned property, by-laws, or any and all covenants involving the leased premises
and mentioned in the specific terms.
This Lease does not contain any guaranty of exclusivity or non-competition by
Landlord, who reserves the right to lease any premises for the exercise of any
activities similar or identical to those of Tenant.
2) SAFETY REGULATIONS
Tenant must take care to respect the administrative regulations and safety rules
pertaining to the category of building containing the leased premises.
Notwithstanding Civil Code article 1721 Landlord assumes no duty to guaranty.
3) ADMINISTRATIVE AUTHORIZATIONS
Tenant shall be personally responsible for securing all authorizations stemming
from the legislative, statutory (notably Town Planning Code, articles L 510.1
and R 510.1 ET SEQ, if the premises are located in the Paris region),
administrative or other rules, concerning the use of the leased premises and, as
the case may arise, their use by the public. Tenant may in no way disturb or
pursue Landlord in this connection. Tenant must satisfy all the formalities and
pay all costs which might prove necessary to the pursuit of its activity and
consequently release Landlord from any liability that might ensue in this
connection.
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<PAGE>
4) SUBLETTING AND ASSIGNMENT
a) SUBLETTING
Any partial or total sub-letting is prohibited.
b) ASSIGNMENT
Tenant may not assign in any way its interest in this Lease without the previous
written consent of Landlord, except to a party acquiring Tenant's company.
In any case, Tenant shall remain joint guarantor of the successive sublessor(s),
as much for the payment of rent and incidentals as for the fulfillment of any
clauses or terms of the Lease, without the possibility of protest or the
benefit discussion or division.
Subletting may occur only by a deed executed and authenticated by Landlord's
notary; Landlord must be notified by registered letter with return receipt
requested to participate in this deed. Landlord shall be sent an enforceable
copy of this deed at no cost to Landlord.
5) DUTY TO FURNISH AND DEVELOP THE PREMISES
Tenant must constantly and at all times furnish the premises with enough
equipment and furniture of sufficient quantity and value to cover payment of
rent and performance of the terms of this Lease. Tenant must use the premises
effectively and without interruption for the activity outlined below.
6) CONSTRUCTION WORK
a) REPAIR AND MAINTENANCE WORK
Tenant shall be responsible not only for rental repairs and minor maintenance
(Civil Code, art. 1720, paragraph 2 and art. 1754, paragraph 1), but also for
any type of repairs, including major repairs defined by Civil Code article 606,
regardless of their extent and regardless of the cause of the deterioration
(fault or defect of construction, dilapidation, etc....), even in the case of
force majeure. This applies to both the building itself as well as to its
equipment.
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<PAGE>
Tenant must immediately notify Landlord with written confirmation of all repairs
incumbent upon Landlord, as well as of all deterioration, damages or accidents
befalling the leased premises or caused by them, under penalty of being held
liable for the consequences that might result from Tenant's silence or delay.
Tenant has a duty, as the case may arise, to notify the Landlord of poor
workmanship, faults or defects affecting the buildings, for the purpose of
executing biennial or decennial guaranties.
Tenant, at its expense, immediately must eliminate all rodents and other
parasites that might appear in the leased premises. Tenant must take all the
necessary protective measures against frost.
Upon Tenant's departure, Tenant, at its expense, must prove, by an inventory of
the premises drawn up between both parties, that the premises are in an
excellent condition of upkeep and repair of any kind in accordance with the
above stipulations. Failing this, Tenant must pay Landlord the cost of necessary
restoration work. This amount shall not be covered by the deposit hereinafter
discussed.
b) IMPROVEMENTS AND ALTERATIONS
Tenant may not make any alterations, or add installations or fixtures, which
would affect the basic structure or modify the interior layout of the leased
premises without Landlord's previous written authorization. Landlord may require
the supervision of his architect whose fees shall be paid by Tenant.
The diagrams and descriptions of alterations, installations, or fixtures planned
by Tenant must be attached to the request for authorization.
Upon Tenant's departure, all alterations, installation, improvements and
additions that Tenant may have effectuated shall become, by accession and
without compensation, the property of Landlord, unless Landlord prefers to
request the restoration of the premises to their original condition exclusively
at Tenant's expense, even if Landlord authorized the changes.
c) ALTERATIONS IMPOSED BY REGULATIONS
Tenant furthermore shall be responsible for all work, regardless of cost,
imposed in the building by either legislative or regulatory rules or by
administrative injunctions, especially all work involving health and safety,
even in the event of force majeure.
Tenant waives recourse in such an event to Civil Code, articles 1755, 1719,
paragraphs 2 and 3 and 1720.
-5-
<PAGE>
d) RULES PERTAINING TO CONSTRUCTION WORK
In the case of default by Tenant, Landlord may arrange for completion of
construction work described in a) and c). Tenant shall reimburse the cost of
this work upon Landlord's first request.
Tenant is solely responsible for performance for all construction work described
in paragraphs a), b) and c) above. Tenant shall have no claim against Landlord.
Tenant shall secure all administrative or other authorizations and subscribe to
any insurance policies which prove necessary, in particular, legally required
policies. Tenant shall require that these companies offer sufficient coverage
for Tenant's professional, contractual, ex delicto and quasi ex delicto
responsibilities.
Tenant may not request any reduction in rent or contract cancellation,
regardless of the duration and extent of construction work, whether the work is
performed by Tenant or Landlord, and in the latter case expressly
notwithstanding Civil Code article 1724.
If the leased premises are a part of a jointly owned property or constitute only
a subparcel of a building belonging to Landlord, the Tenant's duties to perform,
listed above, involve only construction work relating to the Tenant's leased
subparcels.
Regarding construction work on common areas, decided upon and carried out by the
property owners' association or Landlord, Tenant shall have to reimburse
Landlord its share of expenditures corresponding to the leased premises.
*7) SIGNS
The posting of /[handwritten] additional [signature]/ outdoor signs or of
billboards is prohibited without Landlord's advance written approval, which is
indicated, in this Lease, in the "specific terms". Tenant must conform to
Landlord's regulations in the case that Tenant wishes to post any inscription or
indications of its business name or purpose in the common areas of the building.
8) LIABILITIES AND CLAIMS
Tenant may make no request for a rent reduction, nor may Tenant have any claim
against Landlord:
- - in the event of interruption or of poor functioning of the various building
services.
- - in the event of theft, looting, damages or other illegal acts committed in
the leased premises. In particular, Landlord does not assume any obligation
to provide surveillance.
-6-
<PAGE>
Tenant waives any claim against Landlord for prevention of enjoyment due to
third parties, and is personally responsible for actions taken against third
parties. The Tenant shall exercise Landlord's rights to prosecute in these
circumstances.
9) INSURANCE
a) Tenant, at its expense, must obtain and maintain, for the entire term of this
Lease, for its furniture, equipment, windows, fixtures, and installations,
insurance against risk of fire, explosions, flooding, and claims from neighbors
and third parties, acts of malevolence, terrorism, sabotage, riots and popular
uprisings.
b) Tenant, at its expense, must also, as occupant, insure its civil liability
for all bodily or material damages, which might be caused to third parties, due
to Tenant's occupation of the premises, due to its employees or agents, or due
to the existence or use of its fixtures and installations.
c) Additionally, Tenant's insurance policies must provide that their
cancellation may not take effect until fifteen days after the insurer provides
notice to Landlord. Tenant waives and shall have its insurance company waive any
claim against Landlord.
d) Tenant shall tender to Landlord, at Landlord's first request, proof that the
above-discussed policies have been signed and that the corresponding premiums
have been paid.
It is expressly agreed that any payments due to Tenant by all insurance
companies in the event of an accident, regardless of cause, shall be assigned to
Landlord, as needed, up to the amounts which may be due.
e) Landlord shall be personally responsible for insuring the building at normal
market rates, but Tenant shall reimburse Landlord's premiums.
10) LEVIES AND TAXES
Tenant must pay all charges imposed by the city, police and garbage collections
services that are normally charged to tenants, in such a way that Landlord shall
not be disturbed in this connection. In particular, Tenant must pay the
professional tax and all levies incumbent upon Tenant but for which Landlord is
or might be held responsible in any way. Tenant must prove payment of any claim,
in any case, eight days at least before leaving the leased premises.
11) UTILITIES
Tenant shall be responsible for all subscriptions to water, electricity,
telephone services, etc....
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<PAGE>
12) VISITATION OF PREMISES
During the Lease term, Tenant must allow Landlord's representatives to visit the
leased premises at any time, in order to check upon their condition; and Tenant
must tender any requested proof that the terms of the Lease are being fulfilled.
During the six months preceding expiration of the Lease, Tenant must allow any
person Landlord authorizes to visit the leased premises any day from 9:00 a.m.
to 11:00 a.m. and from 2:00 p.m. to 5:00 p.m., except holidays. Tenant must
during this time allow Landlord to post a notice or sign indicating that the
premises are for lease.
* ARTICLE 5 - FINANCIAL TERMS OF LEASE
1) RENT
Rent is due from the date the Lease takes effect.
a) BASE ANNUAL RENT
*This Lease is agreed upon and accepted for an annual rent, before taxes, the
amount of which is indicated hereafter in the "specific terms".
This rent shall be payable quarterly, each trimester and in advance, on the
first day of the first month of each civil trimester.
Rent for the period between the starting date of this Lease and the expiration
of the pending civil trimester at that date shall be paid at the time the Lease
takes effect.
Landlord hereby opts for the application of the value-added tax on revenues from
this location.
This tax shall be charged to Tenant, who agrees to pay Landlord at the same time
as the corresponding periodical rent before taxes. Tenant also agrees to pay all
taxes which might be substituted for or added to the value-added tax by
regulations.
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<PAGE>
In the event of Tenant's failure to pay rent, corresponding V.A.T., or expenses,
on the due date, Tenant shall owe Landlord an amount equal to .75% plus taxes
per month of delay or fraction of month of delay. This amount, based on the
total of the unpaid amount when due, shall automatically become due without
advance notice. Payment of this amount does not allow Tenant to further delay
any payments due.
*b) INDEXING OF ANNUAL RENT
Annual rent shall be indexed on the national index of the cost of construction,
published each trimester by the INSEE [Census Bureau].
The index used for the determination of base annual rent is indicated in the
"specific terms".
Consequently, annual rent shall be adjusted automatically each year on the
anniversary of this Lease"s starting date in the same manner and the same
proportion of the year-to-year variation of the index of the same trimester.
In the event that publication of this index is delayed, rent can be
provisionally calculated on the basis of the previously published index.
The modification of rent is automatic and requires no notification. In the event
that the modification is not calculated immediately, this shall not in any way
alter the right of either party to subsequently demand its retroactive
application.
Should the INSEE index cease to be published and not be replaced by an official
index, it shall be replaced by an equivalent index chosen either amicably
between the parties, or, failing an amicable agreement, by a valuation made by a
single expert, designated either by mutual agreement between the parties or by
order of the Presiding Judge of the District Court, issued on the petition of
the most diligent party. Tenant shall be exclusively responsible for the cost of
the valuation and for court costs. The expert shall act as common representative
of the parties in accordance with Civil Code article 1592, the provisions of
which have been extended to rentals.
This escalator clause is an essential and requisite clause without which
Landlord would not have contracted this Lease. Therefore, its partial or total
non-application shall authorize Landlord, and only Landlord, to demand
cancellation of the Lease without penalty.
-9-
<PAGE>
*2) EXPENSES
Landlord considers the rent as net of expenses. Tenant shall pay all expenses,
services, supplies, taxes and expenditures related to the leased premises,
including, in particular, the Property Tax, expenses incumbent upon Landlord as
a member of a Union or Unions, as well as insurance premiums for the building,
and major repairs defined by Civil Code article 606.
Nevertheless, in the event that Landlord must pay any amounts on behalf of
Tenant, Tenant shall have to reimburse Landlord immediately upon the first
request.
Expenses normally incumbent upon Landlord, but contractually transferred to
Tenant, are fiscally assimilated into a supplement to the rent. Consequently,
the V.A.T. shall apply to these expenses.
*Tenant shall pay Landlord, with the trimestral rent check, a deposit for
expenses calculated on the base of projected expenditures for the year. An
adjustment shall be made based upon the final accounting of the expenses
relative to the leased premises. The total of the deposit shall be revised each
year by reference to the actual evolution of expenses. The first trimestral
deposit is determined by the "specific terms".
*3) GUARANTY DEPOSIT
Upon signing this Lease, Tenant paid a guaranty deposit to Landlord, who hereby
acknowledges receipt, in an amount equal to three months of rent including all
taxes. The deposit amount shall be specified in the "specific terms".
The guaranty deposit shall be applied, at the expiration of the Lease or at the
time of its anticipated cancellation, regardless of cause, to payment of all
sums that Tenant might owe Landlord. However, Tenant may not in any case charge
rents and expenses against this deposit.
At the time of each annual review of rent, the deposit shall be increased or
reduced so that it always equals three months of rent including all taxes.
Increased payments or reimbursements must be made upon the first request.
In the event of cancellation of this Lease due to non-performance by Tenant of
one of its duties, the guaranty deposit shall be retained by Landlord for
damages, without prejudice to Landlord's right to payment of rents incurred or
to be incurred until the end of the pending triennial period, of the cost of
repairs at Tenant's expense, and without prejudice to damages and interest
payments which might be owing to Landlord.
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<PAGE>
ARTICLE 6 - TERMINATION CLAUSE
The parties expressly agree that in the event of failure to pay, upon the due
date, a single term of rent, corresponding V.A.T., or expenses, or in the event
of failure to perform any of the other stipulations of this Lease, the Lease
shall be canceled automatically, if Landlord wishes, without having to give
notice at law of this cancellation, one month after an order to pay or notice by
out-of-court act to perform remain unfruitful.
Landlord shall regain free access to the premises simply by evicting Tenant by
summary judgment. Subsequent offers may not stop the effect of this clause.
There shall be no prejudice to Landlord's right to payment of rents incurred or
to be incurred until the end of the pending triennial period or of the cost of
repairs which are Tenant's responsibility. There shall be no prejudice to any
other dues, rights or actions.
*ARTICLE 7 - GUARANTIES
These are indicated and set out in the "specific terms".
ARTICLE 8 - REGISTRATION
This Lease shall be registered by Landlord at Tenant"s expense.
ARTICLE 9 - MISCELLANEOUS EXPENSES
Tenant must pay all expenses, taxes, and fees of this Lease and those which are
a consequence of it.
*ARTICLE 10 - DOCUMENTS TENDERED TO TENANT
These are indicated in the "specific terms".
-11-
<PAGE>
ARTICLE 11 - CHOICE OF DOMICILE AND JURISDICTION
For the execution of these documents, Landlord elects its domicile in its
registered office and Tenant in the leased premises.
THE PARTIES AGREE THAT ALL DISPUTES RELATING TO THIS DEED SHALL BE EXCLUSIVELY
THE JURISDICTION OF THE COURTS OF THE LANDLORD S REGISTERED OFFICE.
CHAPTER II - SPECIFIC TERMS OF CONTRACT
This chapter II treats only the articles in the general terms which are
completed or modified for the purposes of this contract.
ARTICLE 1 - DESCRIPTION OF PREMISES
- - Building: 321 avenue Jean Jaures, LYON 69007
- - Leased premises:
On level 0 [the ground floor]:
- premises for shops and industrial premises measuring 2785 m(2)
On level 2 [the third floor]:
- offices measuring 808 m(2)
- industrial premises measuring 1382 m(2)
- passageways measuring 577 m(2)
- bathrooms/toilets measuring 18 m(2)
-------
For a total of 2785 m(2)
Additionally, 70 basement parking spots and 7 outdoor parking spots.
Diagrams of the leased premises are attached hereto.
ARTICLE 2 - STARTING DATE AND TERM OF LEASE
This Lease is agreed to and accepted for a term of nine entire consecutive
years, beginning October first one-thousand nine-hundred ninety-two (October 1,
1992) and ending October first two-thousand one (October 1, 2001), with the
exception of the option of triennial cancellation, provided for by the decree of
September 30, 1953. The parties nevertheless agree that Tenant cannot cancel
this Lease prior to October first one-thousand nine-hundred ninety-eight
(October 1, 1998).
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<PAGE>
ARTICLE 4 - TERMS OF LEASE
1) USE OF PREMISES
Tenant shall use the leased premises for commercial use for the needs of its
manufacturing, trading, import, and export of any medical, particularly ocular,
equipment and prostheses, as well as for any equipment necessary for production,
for pharmaceutical development, and for development of micro-mechanics.
4) SUBLETTING AND ASSIGNMENT
As of now, Tenant DOMILENS LABORATORIES corporation, is authorized to sublet all
or part of the below-described premises to any subsidiary company or sister
company or company of which it owns over 34% equity.
7) SIGNS (1)
/handwritten: The outdoor signs and billboards in existence today, and of which
Landlord and Tenant hereby declare full knowledge, are authorized as needed.
[signature]/
ARTICLE 5 - FINANCIAL TERMS OF LEASE
1) RENT
a) BASE ANNUAL RENT
- - Base annual rent before taxes.......................... FRF 9,750,000
- - V.A.T.................................................. FRF 1,813,500
--------------
- - Base annual rent including all taxes................... FRF 11,563,500
- --------------------------
(1) Specify the terms of posting signs or write "none".
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<PAGE>
b) INDEXING OF BASE ANNUAL RENT
Index used for determining base annual rent:
Index for the second trimester of 1992.
3) EXPENSES
- - First trimestral deposit.................... FRF to be specified later
3) GUARANTY DEPOSIT
The guaranty deposit, which equals one trimester of rent, before taxes, is fixed
for the first year of the lease at FRF 2,437,500.
ARTICLE 7 - GUARANTIES
None.
[city:]
---------------------
[date:]
---------------------
Two original copies
Landlord, Tenant,
/signature/ /signature/
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<PAGE>
Exhibit 10.84
[Translator's note: every page of this amendment, except the signature page, is
initialed at the bottom by both parties.]
AMENDMENT NO. 1
BETWEEN THE UNDERSIGNED:
DOMILYON CORPORATION, with FRF 15,000,000 in assets, which became a Private
Corporation on October 19, 1992, headquartered at 32 RUE DE LISBONNE, PARIS
75008, PARIS Trade and Company Register registration number B 348 447 285 (94 B
01767)
represented by Mr. Alain LEMAITRE, acting in his capacity as Director
Hereinafter "Landlord"
on the one hand
and
"DOMILENS LABORATORIES" corporation, with FRF 43,500,000 in assets,
headquartered at 321 avenue Jean Jaures, LYON 69007, LYON Trade and Company
Register registration number B 327 032 629,
represented by Mr. Francois PERRARD, its Chief Executive Officer, fully
empowered to negotiate and sign this document,
Hereinafter "Tenant"
on the other hand
.../...
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<PAGE>
REPORT
On October 1, 1992, DOMILENS LABORATORIES Corporation began leasing premises in
a building located at 321 Avenue Jean Jaures, LYON 7th district:
- - on level A.O. [ground floor] - business area:
* premises for shops and industrial premises measuring approximately
2785 m(2)
- - on level A2 [third floor] - business area:
* premises for offices, industrial use, and passageways measuring 2785
m(2)
- - 70 basement parking spots and 7 outdoor spots.
DOMILENS Corporation, given its new organization, wishes to return certain
premises and lease others.
Under these conditions, DOMILENS Corporation met with owner DOMILYON Corporation
and, by mutual agreement, the parties have agreed upon the following:
ARTICLE 1
The description of the premises as it appears in Chapter II, Article 1 of the
above-referenced Lease, is replaced by the following description:
- - Leased premises:
- - on level B2 (third floor) of the offices area,
* the entirety of premises for offices, passageways, and
bathrooms/toilets amounting to a surface area measuring approximately
450 m(2)
- - on level A0 [ground floor] - business area
* premises for shops, industrial use, offices and passageways,
bathrooms, and toilets amounting to a surface area measuring
approximately 1796 m(2)
- - on level A2 [third floor] - business area
* the entire floor comprising offices, industrial premises, clean rooms,
passageways, and bathrooms/toilets amounting to a surface area
measuring approximately 2,785 m(2)
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<PAGE>
- - on A4 - business area
* Premises for use as offices, laboratories, and passageways amounting
to a total surface area measuring approximately 464 m(2)
- - on level B-1 (first basement of the office parcel)
* filing area with a surface area measuring approximately 138 m(2)
- - 70 basement parking spots and 7 outdoor spots.
Diagrams of the premises so described are attached hereto.
ARTICLE 2
Tenant agrees to vacate the premises it is returning on September 1, 1994 at the
latest, except for the premises located on A4 (business area) which must be
vacated now. Tenant agrees to return these premises in a good state of
cleanliness, upkeep and rental repairs, but Tenant shall not owe Landlord for
repairs or restoration following disorder from construction stemming from
biennial or decennial guaranties of perfect completion, or following any faulty
construction or completion as stated in article 3 below.
An inventory of premises absolutely must be completed within a maximum of eight
days following the starting date of this amendment, in order to make note of
exiting disorder arising from the above guaranties.
ARTICLE 3
The first paragraph of article 4 (6) (a), repair and maintenance work is
modified as follows:
Tenant shall be responsible not only for rental repairs and minor maintenance,
but also for major repairs defined by Civil Code article 606, except disorder
linked to construction defects arising from the usual guaranties of perfect
completion or from biennial or decennial guarantee, or having been listed as one
of Landlord's reservations at the time of receipt of the building.
By the same token, Tenant shall not be obligated to contribute to the cost of
construction work stemming from one of the above-listed circumstances, in the
event that the cost of restoration work is less than the deductible anticipated
in Landlord's damages-construction policy.
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<PAGE>
ARTICLE 4
Notwithstanding articles 2-1 and 2-8 of the site's by-laws, established
subsequent to the starting date of the Lease between Tenant and Landlord, and,
in particular, as regards payment of compensation in the event of use of the
common areas or of the presence of signs, it is hereby established that Tenant
shall be free to maintain its existing equipment in the known common areas, with
the exception of the common areas located on level 1 [floor 2] (cafeteria,
kitchenette, lounge, infirmary, showers ....) at the starting date of this
amendment, as well as the outdoor signs, without compensation or fees of any
nature, other than those arising from the use, repair or renewal of it own
fixtures, as this right was taken into consideration at the time the rent was
fixed.
ARTICLE 5
As long as Landlord will not have set up a reception area in the entryway of the
building, common to all occupants, Tenant shall be authorized to maintain the
reception area currently in existence for its sole use, at its sole expense,
according to its own schedule, and without additional compensation or fees to
Landlord, as long as Tenant wishes, within the limits of the condition explained
above.
ARTICLE 6
As Tenant is not in the business of delivering services in the building to the
occupants, Landlord expressly authorizes Tenant to disconnect from its
switchboard system and from its access control system, all the connections no
longer corresponding to its establishment.
ARTICLE 7
Given the Tenant's particular business, the parties agree to meet in order to
define by mutual agreement the level of services to provide Tenant, except for
the services whose conditions of operation are under the direct control of
Tenant.
ARTICLE 8
Beginning August 1, 1994, contracts with EDF [electricity and gas company] shall
be at the expense of Landlord as general services. Beforehand, Tenant shall meet
with Landlord to finalize the separation of electric supplies and the metering
of this energy.
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ARTICLE 9
All other provisions of this Lease remain unchanged, in particular the financial
provisions.
ARTICLE 10
This amendment shall take effect on May 10, 1994
Paris, May 9, 1994
/signature/
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<PAGE>
Exhibit 10.85
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
- -------------------------------------------------------------------------------
AGREEMENT
between
CHIRON CORPORATION
and
CEPHALON, INC.
January 7, 1994
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE NO.
--------
PART I - DEFINITIONS
ARTICLE 1 - DEFINITIONS
Affiliate................................................................. 2
Allowable Expense......................................................... 2
Alternate Facility........................................................ 2
bFGF...................................................................... 2
Calendar Quarter.......................................................... 2
Cardioxane................................................................ 2
CCP....................................................................... 2
Cephalon.................................................................. 2
Cephalon Agreements....................................................... 2
Cephalon Facility......................................................... 2
Cephalon Technology....................................................... 3
Chiron.................................................................... 3
Chiron Agreements......................................................... 3
Chiron Facility........................................................... 3
Chiron Product............................................................ 3
Chiron Technology......................................................... 3
CIBA...................................................................... 3
CIBA Agreement............................................................ 3
Collaboration............................................................. 3
Commercialization Date.................................................... 4
Compound.................................................................. 4
Continuing Licensee....................................................... 4
Cost...................................................................... 4
Development Committee..................................................... 4
Development Plan.......................................................... 4
Effective Date............................................................ 4
Field..................................................................... 4
GMP Grade................................................................. 4
IND....................................................................... 4
JV........................................................................ 5
Joint Technology.......................................................... 5
JV Technology............................................................. 5
Major Market.............................................................. 5
Management Committee...................................................... 5
Manufacturing Information................................................. 5
Marketing Committee....................................................... 5
Market Exclusivity........................................................ 5
Marketing Plan............................................................ 5
NDA....................................................................... 5
Net Sales................................................................. 6
Operating Losses.......................................................... 6
Operating Profits......................................................... 6
Pricing Approval.......................................................... 7
Product................................................................... 7
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Regulatory Approval....................................................... 7
Regulatory Standards...................................................... 7
Royalty Territory......................................................... 7
SIBIA Rights.............................................................. 7
SOD....................................................................... 7
Specifications............................................................ 7
Technical Information..................................................... 7
Territory................................................................. 8
Third Party Royalties..................................................... 8
Trademark................................................................. 8
PART II - ACTIVITIES IN MAJOR MARKETS
ARTICLE 2 - PURPOSE, MANAGEMENT, ETC. OF THE COLLABORATION
SECTION 2.1 Purpose of Collaboration............................... 8
SECTION 2.2 Structure.............................................. 8
SECTION 2.3 Management Committee................................... 8
SECTION 2.4 Development Committee.................................. 9
SECTION 2.5 Membership; Duties of Members and Alternate Members.... 9
SECTION 2.6 Authorized Actions..................................... 10
SECTION 2.7 Meetings............................................... 10
SECTION 2.8 Locations of Meetings.................................. 10
SECTION 2.9 Conduct of Meetings.................................... 10
SECTION 2.10 Additional Committees.................................. 11
SECTION 2.11 Exclusion from Allowable Expenses...................... 11
SECTION 2.12 Cooperation of Collaborators........................... 11
SECTION 2.13 Duties of Collaborators................................ 11
ARTICLE 3 - RESEARCH AND DEVELOPMENT ACTIVITIES
SECTION 3.1 Priorities; Plans; Budgets............................. 11
SECTION 3.2 Clinical Supplies of Products.......................... 13
SECTION 3.3 Regulatory Approvals................................... 14
SECTION 3.4 Balancing of Development Costs......................... 15
ARTICLE 4 - COMMERCIALIZATION ACTIVITIES IN MAJOR MARKETS
SECTION 4.1 Marketing Strategy in Major Markets.................... 16
SECTION 4.2 Responsibilities of the Parties........................ 17
SECTION 4.3 Commercialization of Products.......................... 18
SECTION 4.4 Labelling.............................................. 18
SECTION 4.5 Manufacture of Commercial Supplies of Products......... 18
SECTION 4.6 Activities of Chiron Outside the Field................. 21
ARTICLE 5 - LICENSES
SECTION 5.1 Cross-Licenses Prior to Formation of JV................ 23
SECTION 5.2 Licenses to JV......................................... 24
SECTION 5.3 Licenses from JV to Collaborators in the Major Markets. 24
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SECTION 5.4 License from JV to Chiron in the Royalty Territory..... 24
SECTION 5.5 Optional Rights........................................ 24
SECTION 5.6 Retained Rights........................................ 26
SECTION 5.7 Prior Rights........................................... 26
SECTION 5.8 Inventions............................................. 26
SECTION 5.9 New Technologies....................................... 26
SECTION 5.10 Maintenance of Technology.............................. 27
SECTION 5.11 Sublicensing of Technology............................. 27
SECTION 5.12 Disclosure of Technology............................... 27
ARTICLE 6 - COMPENSATION IN MAJOR MARKETS
SECTION 6.1 Equal Sharing of Operating Profits and Losses.......... 28
SECTION 6.2 Special Allocations.................................... 28
SECTION 6.3 Off-Label Sales in the Major Markets................... 29
SECTION 6.4 Royalties to Chiron on Sales of Chiron Products........ 29
SECTION 6.5 Calculation of Operating Profits....................... 31
PART III - ACTIVITIES IN ROYALTY TERRITORY
ARTICLE 7 - DEVELOPMENT AND COMMERCIALIZATION ACTIVITIES IN
ROYALTY TERRITORY
SECTION 7.1 Development and Commercialization Responsibilities..... 32
SECTION 7.2 Coordination with Collaboration........................ 32
SECTION 7.3 Diligence in Commercialization of Products............. 33
SECTION 7.4 Ownership of Data...................................... 33
SECTION 7.5 No Allowable Expenses.................................. 33
SECTION 7.6 Assistance by the JV................................... 33
SECTION 7.7 Contingent Cephalon Marketing Rights................... 33
ARTICLE 8 - ROYALTIES AND REPORTS, ETC.
SECTION 8.1 Royalties.............................................. 34
SECTION 8.2 Royalty Rate Adjustments............................... 34
SECTION 8.3 Allocation of Net Sales in the Royalty Territory....... 36
SECTION 8.4 Third Party Royalties.................................. 36
SECTION 8.5 Payment of Royalties................................... 37
SECTION 8.6 Reports................................................ 37
SECTION 8.7 Currency Restrictions.................................. 37
SECTION 8.8 Taxes.................................................. 37
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<PAGE>
PART IV - GENERAL PROVISIONS
ARTICLE 9 - INTELLECTUAL PROPERTY MATTERS
SECTION 9.1 Intellectual Property Protections...................... 38
SECTION 9.2 Defense of Infringement Claims......................... 38
SECTION 9.3 Prosecution of Third Party Infringements............... 39
SECTION 9.4 Joinder................................................ 40
SECTION 9.5 Settlement of Claims................................... 40
SECTION 9.6 Cooperation............................................ 40
SECTION 9.7 Trademark Matters...................................... 41
ARTICLE 10 - PAYMENTS AND RECORDS
SECTION 10.1 Payments............................................... 42
SECTION 10.2 Books and Records; Accounting.......................... 42
ARTICLE 11 - CERTAIN REGULATORY MATTERS
SECTION 11.1 Governmental Inspections and Inquiries................. 43
SECTION 11.2 Adverse Reactions...................................... 43
SECTION 11.3 Recalls and Market Withdrawals......................... 43
ARTICLE 12 - CONFIDENTIALITY, ETC.
SECTION 12.1 Confidentiality........................................ 44
SECTION 12.2 Injunctive Relief...................................... 45
SECTION 12.3 Publicity.............................................. 45
ARTICLE 13 - CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 13.1 Corporate Status and Authority......................... 46
SECTION 13.2 No Inconsistent Agreements............................. 47
ARTICLE 14 - DISCLAIMER, INDEMNIFICATION AND INSURANCE
SECTION 14.1 No Warranty............................................ 47
SECTION 14.2 Defense of Claims in Territory......................... 47
SECTION 14.3 Costs and Expenses..................................... 47
SECTION 14.4 Indemnity for Excluded Liabilities..................... 48
SECTION 14.5 Procedures for Indemnification......................... 48
SECTION 14.6 Settlements, etc....................................... 48
SECTION 14.7 Limitation of Liability................................ 48
SECTION 14.8 Insurance.............................................. 49
ARTICLE 15 - DISPUTE RESOLUTION
SECTION 15.1 Dispute Resolution..................................... 49
SECTION 15.2 Arbitration............................................ 49
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ARTICLE 16 - TERM AND TERMINATION
SECTION 16.1 Term................................................... 50
SECTION 16.2 Termination of Agreement in Full....................... 50
SECTION 16.3 Action upon Change of Control.......................... 50
SECTION 16.4 Partial Termination in Royalty Territory............... 51
SECTION 16.5 Rights and Obligations on Termination.................. 51
SECTION 16.6 Termination upon CCP Transfer.......................... 54
SECTION 16.7 Effective Date of Termination.......................... 54
SECTION 16.8 Survival............................................... 54
SECTION 16.9 Remedies not Exclusive................................. 54
ARTICLE 17 - MISCELLANEOUS
SECTION 17.1 Entire Agreement; Amendment............................ 54
SECTION 17.2 References to CIBA..................................... 55
SECTION 17.3 Force Majeure.......................................... 55
SECTION 17.4 No Interference with Existing Businesses............... 55
SECTION 17.5 Compliance with Law.................................... 55
SECTION 17.6 Waiver................................................. 55
SECTION 17.7 No Assignment.......................................... 55
SECTION 17.8 Severability........................................... 56
SECTION 17.9 Notices................................................ 56
SECTION 17.10 Pronouns............................................... 57
SECTION 17.11 Further Instruments.................................... 57
SECTION 17.12 Governing Law.......................................... 57
SECTION 17.13 Counterparts........................................... 57
SCHEDULE I - Third Party Agreements
SCHEDULE II - Field Exclusion
SCHEDULE III - SOD Technology
SCHEDULE IV - Third Party Royalties
SCHEDULE V - Development Expenses for Transition Period
SCHEDULE VI - Allowable Expenses and Accounting Principles
SCHEDULE VII - Preferred Indications of Chiron
SCHEDULE VIII - Cephalon Nonfield Indications
EXHIBIT A - Specifications
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<PAGE>
AGREEMENT
This AGREEMENT, dated as of January 7, 1994, is made by and between CHIRON
CORPORATION, a Delaware corporation ("Chiron"), and CEPHALON, INC., a Delaware
corporation ("Cephalon"). Chiron and Cephalon are sometimes referred to
herein as "Collaborators" and individually as a "Collaborator".
BACKGROUND
A. Cephalon possesses certain intellectual property rights (including a
license from Cephalon Clinical Partners, L.P. ("CCP")) relating to uses of
insulin-like growth factor 1 ("IGF-1") for certain neurological diseases,
disorders and conditions (such as amyotrophic lateral sclerosis ("ALS") and
peripheral neuropathies) and its production and use as a therapeutic agent in
man. Cephalon has an ongoing clinical development program relating to IGF-1
as a therapeutic agent for ALS and certain peripheral neuropathies. Cephalon
wishes to have the benefit of Chiron's expertise in the development and
production of IGF-1 for neurological disorders.
B. Chiron possesses certain intellectual property rights (including a
license from Ciba-Geigy Ltd. ("CIBA")) relating to uses of IGF-1 for certain
neurological diseases, disorders and conditions (such as diabetic
neuropathy), and its production and use as a therapeutic agent in man.
Chiron wishes to have the benefit of Cephalon's expertise in the development
of therapeutic compounds in the neurological field.
C. Chiron and Cephalon have substantial development programs relating
to their respective uses of IGF-1.
D. Chiron possesses certain intellectual property rights and is
otherwise developing other compounds and methodologies that offer promise of
therapeutic application in neurological applications, together with and
independent of IGF-1.
E. Cephalon intends to develop a sales and marketing expertise focusing
principally on the neurology market.
F. Cephalon and Chiron believe that a joint development program that
optimizes the contributions of each of Cephalon and Chiron will accelerate
the beneficial application of IGF-1 and other compounds to address important
unmet needs for therapeutic products applicable to neurological diseases,
disorders and conditions and will be in their mutual and individual best
interests.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound hereby, the parties agree as
follows:
<PAGE>
PART I - DEFINITIONS
ARTICLE 1 - DEFINITIONS
As used in this Agreement, the following terms shall have the
corresponding meanings set forth below:
(a) "AFFILIATE" means any individual or entity directly or indirectly
controlling, controlled by or under common control with, a party to this
Agreement. Without limiting the foregoing, the direct or indirect ownership
of over 50% of the outstanding voting securities of an entity, or the right
to receive over 50% of the profits or earnings of an entity, shall be deemed
to constitute control.
(b) "ALLOWABLE EXPENSE" means the Costs incurred by the JV or a
Collaborator under this Agreement pursuant to a budget approved by the
Management Committee (including a budget contained in a Development Plan) or
that are otherwise approved by the Management Committee as an Allowable
Expense. The term "Allowable Expense" also shall include the Costs incurred
by a party in a Major Market pursuant to Sections 9.2(c), 9.3(b), 9.3(e) and
9.6 (patent defense and prosecution), Section 11.3 (recalls and withdrawals)
or Section 14.3 (joint liability claims) to the extent such Costs are
determined by the Management Committee to be reasonable.
(c) "ALTERNATE FACILITY" has the meaning specified in Section 4.5(a)
hereof.
(d) "bFGF" means basic Fibroblast Growth Factor.
(e) "CALENDAR QUARTER" means each three-month period beginning on
January 1, April 1, July 1 and October 1 of each year.
(f) "CARDIOXANE-TRADEMARK-" means the substance known by the chemical
name of dexrazoxane, and any analogues or derivatives thereof.
(g) "CCP" means Cephalon Clinical Partners, L.P.
(h) "CEPHALON" means Cephalon, Inc. and any Affiliate thereof.
(i) "CEPHALON AGREEMENTS" means the agreements specified on Schedule I
hereto pursuant to Section 13.1 hereof.
(j) "CEPHALON FACILITY" means the facility of Cephalon located at 9000
Virginia Manor Road, Suite 290, Beltsville, Maryland 20705, or any other
facility of Cephalon approved by the Management Committee for use in the
manufacture of Products under this Agreement.
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(k) "CEPHALON TECHNOLOGY" means any existing or future (i) patent
application or issued patent owned or possessed (by license or otherwise) by
Cephalon containing a claim that would be infringed by the manufacture, use
or sale of a Product in the Territory, including any addition, continuation,
continuation-in-part, division, extension or renewal thereof, (ii) Technical
Information owned or possessed (by license or otherwise) by Cephalon, (iii)
the rights of Cephalon in and to any Trademark and (iv) all rights of Cephalon
in and to Joint Technology related to a Product; in each case, to the extent
Cephalon has the right to license or sublicense any such right. The term
"Cephalon Technology" shall not include the SIBIA Rights, unless otherwise
agreed in writing by Cephalon and either Chiron or the JV pursuant to Section
5.5 hereof.
(l) "CHIRON" means Chiron Corporation and any Affiliate thereof.
(m) "CHIRON AGREEMENTS" means the agreements specified on Schedule I
hereto pursuant to Section 13.1 hereof.
(n) "CHIRON FACILITY" means the facility or facilities of Chiron
approved by the Management Committee for use in the manufacture of Products
under this Agreement.
(o) "CHIRON PRODUCT" means any Product of Chiron or the Collaboration in
the field that contains SOD, Cardioxane or bFGF, whether alone or in
combination with an active ingredient other than IGF-1.
(p) "CHIRON TECHNOLOGY" means any existing or future (i) patent
application or issued patent owned or possessed (by license or otherwise) by
Chiron containing a claim that would be infringed by the manufacture, use or
sale of a Product in the Territory, including any addition, continuation,
continuation-in-part, division, extension or renewal thereof, (ii) Technical
Information owned or possessed (by license or otherwise) by Chiron, (iii) the
rights of Chiron in and to any Trademark, and (iv) all rights of Chiron in
and to Joint Technology related to a Product; in each case, to the extent
Chiron has the right to license or sublicense any such right.
(q) "CIBA" means Ciba-Geigy Ltd.
(r) "CIBA AGREEMENT" means the Agreement and License between Chiron and
CIBA dated as of December 31, 1993.
(s) "COLLABORATION" means the business of developing and commercializing
Products within the Territory, whether conducted directly by Cephalon and
Chiron or through the JV.
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(t) "COMMERCIALIZATION DATE" means the date of the first commercial sale
of a Product in a Major Market following Regulatory Approval.
(u) "COMPOUND" means each of IGF-1, SOD, Cardioxane and bFGF and any
composition or product added by the parties to the Collaboration in
accordance with Section 5.9(b) hereof.
(v) "CONTINUING LICENSEE" has the meaning specified in Article 16.5
hereof.
(w) "COST" means the fully burdened, fairly allocated internal costs of
a party, on a consolidated basis, including reasonable and customary
allocations of indirect and overhead expense and charges in the nature of
depreciation and amortization of capitalized cost, and out-of-pocket
expenses, to the extent any of the foregoing were incurred in accordance with
the accounting methodology authorized pursuant to Section 2.3(c) hereof. The
term "Cost" also shall include an interest charge for working capital made
available by a Collaborator for inventory and receivables related to the
Products, upon terms to be approved by the Management Committee. A
Collaborator shall not be required to make working capital available for such
purposes.
(x) "DEVELOPMENT COMMITTEE" means the committee established pursuant to
Section 2.4 hereof.
(y) "DEVELOPMENT PLAN" has the meaning specified in Section 3.1 hereof.
(z) "EFFECTIVE DATE" means the first date when both Cephalon and Chiron
have executed this Agreement.
(aa) "FIELD" means the prophylactic and/or therapeutic treatment of
neurological diseases and disorders in humans including, without limitation,
ALS and peripheral neuropathies such as post-polio syndrome,
chemotherapy-induced peripheral neuropathy, diabetic neuropathy and
Charcot-Marie-Tooth syndrome. The "Field" does not include the uses defined
in SCHEDULE II hereto.
(ab) "GMP GRADE" means production of a Product in accordance with the
Regulatory Standards and the process and procedures described in the
Manufacturing Information.
(ac) "IND" means an application for an Investigational Exemption for a
New Drug filed with the FDA with respect to a Product, or any comparable
filing made with a regulatory authority outside the United States.
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(ad) "JV" means the joint venture to be established by Cephalon and
Chiron in accordance with Section 2.2 hereof.
(ae) "JOINT TECHNOLOGY" means any invention or discovery, whether or not
patentable and whether or not in the Field (i) that is made solely or jointly
by a JV employee, or (ii) as to which Cephalon and Chiron would be deemed
joint inventors in accordance with U.S. patent laws.
(af) "JV TECHNOLOGY" has the meaning specified in Section 5.2(c) hereof.
(ag) "MAJOR MARKET" means (i) each of the United States, Canada, Mexico,
Austria, Finland, Norway, Sweden and Switzerland and each member country of
the European Economic Community ("EEC") as constituted on the Effective Date,
whether or not any such country remains a member of the EEC during the term
of this Agreement; and (ii) any country which joins the EEC after the
Effective Date. If any of the specified countries dissolves or otherwise
converts into constituent parts, any country or countries resulting from such
dissolution shall automatically be included in the definition of "Major
Market".
(ah) "MANAGEMENT COMMITTEE" means the committee established pursuant to
Section 2.3 hereof.
(ai) "MANUFACTURING INFORMATION" means all chemistry, formulation,
manufacturing, quality control and other information required to be included
in as IND or NDA for a Product.
(aj) "MARKETING COMMITTEE" means the committee to be established pursuant
to Section 4.1 hereof.
(ak) "MARKET EXCLUSIVITY" means, with respect to a Product, any of the
following: (i) sale of the Product in the country in question would infringe
a claim of an issued patent owned or possessed (by license or otherwise) in
whole or in part by a Collaborator or the JV that has not expired or been
held invalid or unenforceable by a court of competent jurisdiction in a final
and nonappealable or non-appealed judgment, or (ii) the Product or the
indication for the Product enjoys market exclusivity by reason of any statute,
regulation, rule or order of a governmental authority in the country.
(al) "MARKETING PLAN" has the meaning specified in Section 4.1 hereof.
(am) "NDA" means a New Drug Application or a Product License Application
filed with the FDA with respect to a Product, or any comparable filing made
with a regulatory authority outside the United States.
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<PAGE>
(an) "NET SALES" means the invoiced price of a Product charged to an
unaffiliated end user in the Territory (i.e., a third party whose use is
intended to result in the consumption or destruction of the Product), net of
returns and rejections, and after deducting, (i) sales or similar taxes,
packaging charges, freight and insurance, to the extent charged to the
purchaser or directly attributable to the specific sale, (ii) cash, trade and
quantity discounts actually allowed and taken, and (iii) allowances, rebates
and commissions actually taken or paid. With respect to sales of a Product
in the Royalty Territory, if a Product is sold with a single invoiced price
in combination with another therapeutically active component or components or
as a combination with diagnostic products where one or more components or
products are not Products, Net Sales under such circumstances shall be
calculated by multiplying Net Sales of the combination by the fraction A/(A
B), in which A is the invoiced price of the Products, if sold separately, and
B is the total invoiced price of any other active components or components in
combination, if sold separately. If the Product and/or the active components
or components in the combination are not sold separately, the values of the
individual components shall be reasonably determined by the Management
Committee. The value of the components of the combination will be based on,
but not limited to, the cost of manufacturing, the value of comparable
components marketed by others and the potential value based on the current
cost of diagnosing and treating the disease. In the case of a combination
product marketed by the Collaboration in the Major Markets, the Management
Committee shall determine the portion of the invoiced price of such product
that is to be treated as Net Sales under this Agreement.
(ao) "OPERATING LOSSES" means any negative number which results from the
calculation of Operating Profits.
(ap) "OPERATING PROFITS" means for the applicable accounting period, the
sum of: [CONFIDENTIAL TREATMENT REQUESTED]; LESS [CONFIDENTIAL TREATMENT
REQUESTED] for the applicable accounting period.
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(aq) "PRICING APPROVAL" means any pricing or third party reimbursement
approval required for the marketing of a Product.
(ar) "PRODUCT" or "PRODUCTS" means any product consisting of or
containing a Compound, whether alone or in combination with another active
ingredient, to the extent that it is being developed for a use or is used, or
has received Regulatory Approval for a use, in the Field. The term "Products"
excludes any product containing a Compound to the extent it is being
developed for a use or is used, or has received Regulatory Approval for a
use, outside the Field, except to the extent provided under Sections 6.2, 6.3
and 8.3 hereof. The term "Products" also excludes any composition of Chiron
or Cephalon that does not contain a Compound, even if such composition is
used within the Field.
(as) "REGULATORY APPROVAL" means any marketing authorization (including
authorizations approving an NDA) required for a Product, exclusive of Pricing
Approvals.
(at) "REGULATORY STANDARDS" means (i) the facility license requirements
and the current Good Manufacturing Practice regulations of the FDA applicable
to the manufacturing facility for, or the production, storage or handling of
Products, and (ii) any standards of any governmental authority, whether
within or outside the United States (including, without limitation, the
Environmental Protection Agency, OSHA and state and local authorities), that
apply to the manufacturing facility for, or the production, storage or
handling of, Products.
(au) "ROYALTY TERRITORY" means the portion of the Territory other than
the Major Markets.
(av) "SIBIA RIGHTS" means the patent rights, know-how and other
intellectual property rights licensed by Cephalon from The Salk Institute of
Biotechnology/Industrial Associates, Inc. pursuant to the License Agreement
dated March 5, 1992.
(aw) "SOD" means superoxide dismutase compounds and related technology
described on SCHEDULE III hereto.
(ax) "SPECIFICATIONS" means the manufacturing, quality control,
packaging, labelling, shipping and storage specifications for each Product,
to be agreed to by the parties in writing after the Effective Date and made a
part of this Agreement as EXHIBIT A hereto. All Products shall be supplied
under this Agreement in final, finished and vialed form suitable for end use.
(ay) "TECHNICAL INFORMATION" means know-how, trade secrets, technical
information, formulae, processes and data
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<PAGE>
owned or possessed (by license or otherwise) by a Collaborator which relate
to the composition, manufacture or use of a Product, including, without
limitation, preclinical or clinical results.
(az) "TERRITORY" means the world excluding Japan.
(ba) "THIRD PARTY ROYALTIES" means the royalties payable to third party
licensors in the Major Markets under the agreements specified on SCHEDULE IV
hereto and any additional royalties payable in the Major Markets by the JV in
accordance with Section 5.9(a) hereof.
(bb) "TRADEMARK" means any trademark, tradename or trade dress designated
in writing by the Collaboration for use with a Product in the Territory,
whether pending, allowed or registered.
PART II - ACTIVITIES IN MAJOR MARKETS
ARTICLE 2 - PURPOSE, MANAGEMENT, ETC. OF THE COLLABORATION
SECTION 2.1 PURPOSE OF COLLABORATION. The purpose of the Collaboration
is to conduct research, product development and clinical activities and seek
Regulatory Approvals related to Products in the Territory and to
commercialize Products in the Territory. The parties will collaborate
exclusively with each other with respect to the development and
commercialization of the Products in the Territory and the Field. The parties
intend to share equally in certain costs of developing Products in the Major
Markets and in any ultimate Operating Profits or Losses.
SECTION 2.2 STRUCTURE. Chiron and Cephalon will conduct the
Collaboration pursuant to this Agreement until they establish a separate
legal entity for such purpose (the "JV"). The JV shall be formed no later
than the filing of the first application for Regulatory Approval of a
Product in the Territory. The JV, whether a partnership or a corporation
(the "JV"), shall be established in a written amendment or supplement to this
Agreement signed by Cephalon and Chiron.
SECTION 2.3 MANAGEMENT COMMITTEE.
(a) ESTABLISHMENT. The Collaboration, whether conducted directly
by Cephalon and Chiron or through the JV, will be managed by a Management
Committee, which is hereby established to carry out the business of the
Collaboration and implement the provisions of this Agreement.
(b) AUTHORITY. The Management Committee shall exercise such powers
as it deems necessary or desirable to further the purposes of the
Collaboration in the mutual best
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interests of the Collaborators, except to the extent that such powers are
reserved to the Collaborators by this Agreement. In particular, the
Management Committee shall be responsible for (i) approving an annual
development plan and budget for the Collaboration, (ii) reviewing the
performance (including the cost-effectiveness) of each Collaborator's and the
JV's activities, (iii) establishing the accounting methodologies for Costs,
Allowable Expenses and the calculation of Operating Profits in accordance
with paragraph (c) below, and (iv) approving acquisitions of technology from
third parties or the Collaborators pursuant to Section 5.9 hereof.
(c) ACCOUNTING METHODOLOGY. Initially, each Collaborator shall
apply its internal cost accounting principles and methodology in determining
Costs incurred with respect to the Collaboration, which shall be consistent
with generally accepted accounting principles and with the principles and
methodology applied by the Collaborator to its other projects and reasonably
acceptable to the Management Committee. The Management Committee shall review
the internal cost accounting principles and methodology of the Collaborators
and as soon as practicable, but in no event later than receipt of the first
Regulatory Approval of a Product in a Major Market, shall establish a
statement of cost accounting principles and methodology, consistent with
generally accepted accounting principles, to be used by each Collaborator and
the JV in recording and reporting Costs as Allowable Expenses and calculating
Operating Profits under this Agreement. The approved statement shall be
attached to this Agreement as SCHEDULE VI. Any disagreement with respect to
the development of the principles and methodologies to be set forth in
SCHEDULE VI shall be resolved by a reputable firm of independent public
accountants selected by the Collaborators.
SECTION 2.4 DEVELOPMENT COMMITTEE. A Development Committee is hereby
established under the supervision of the Management Committee to monitor all
research and development activities of the Collaboration, to carry out all
other obligations assigned to it under this Agreement or by the Management
Committee, and to make recommendations to the Management Committee with
respect to its activities. In particular, the Development Committee shall be
responsible for (i) preparing a preliminary annual development plan
containing project plans, schedules and annual budgets for approval by the
Management Committee, (ii) approving regulatory efforts of the Collaboration,
including the design of clinical trials to be conducted for each Product in
the Major Markets to the extent provided in Section 3.1, the identification of
clinical trial sites and the preparation and approval of clinical trial
protocols, and (iii) monitoring the progress of clinical activities.
SECTION 2.5 MEMBERSHIP, DUTIES OF MEMBERS AND ALTERNATE MEMBERS. Each
Collaborator shall appoint 50% of the members of
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the Management Committee and Development Committee. The Collaborators shall
designate the initial members promptly after the Effective Date. The
Management Committee members shall be members of the senior management of the
designating Collaborator. Each Collaborator may remove and replace its
representatives on the Management Committee and the Development Committee at
any time, without cause, upon written notice to the other Collaborator. An
alternate member designated by a Collaborator shall be entitled to vote only
in the absence of a regular member designated by such Collaborator. All
references to "members" in this Agreement refers to the regular members and
any alternate member acting in the place of a regular member.
SECTION 2.6 AUTHORIZED ACTIONS. Any action or decision by the
Management Committee or Development Committee must be authorized by the
approval of a majority of each party's designated members on the Committee,
unless otherwise specified in this Agreement. If the Development Committee
can not agree on a particular matter, the matter shall be submitted for
resolution to the Management Committee. If the Management Committee can not
agree on a particular matter, the matter shall be submitted for resolution in
accordance with Article 15 hereof.
SECTION 2.7 MEETINGS.
(a) FREQUENCY. The regular meetings of the Management Committee and
Development Committee shall be scheduled by a consensus of a majority of the
members. Any meetings of the two Committees may be combined into a joint
meeting. In no event, however, shall the Management Committee meet less
frequently than twice each year or the Development Committee meet less
frequently than quarterly. A special meeting of the Management Committee or
the Development Committee also may be called by any two members of the
applicable Committee.
(b) NOTICE. Notice of the date, time and place of every regular or
special meeting and a proposed agenda for the meeting shall be provided to
the members, no later than fifteen (15) days prior to the scheduled date of
the meeting (unless notice is waived in writing by the member).
SECTION 2.8 LOCATIONS OF MEETINGS. The regular and special meetings of
the Management Committee and the Development Committee shall alternate
between the principal business offices of each Collaborator, unless otherwise
agreed by a majority of the members of the applicable Committee.
SECTION 2.9 CONDUCT OF MEETINGS. Any regular or special meeting of the
Management Committee or the Development Committee may be conducted in person
or by conference telephone. The Management Committee and the Development
Committee may act without a meeting if a written consent to the action is
signed by
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a majority of each party's designated members of the applicable Committee.
Minutes reflecting actions taken at meetings shall be maintained with the
books and records of the Collaboration and shall be distributed to the
Collaborators upon request.
SECTION 2.10 ADDITIONAL COMMITTEES. The Management Committee may, from
time to time, delegate specific powers to special-purpose committees of the
Management Committee, other than the Development Committee. Any additional
committees, including the Marketing Committee to be established under Section
4.1 shall be constituted and shall operate in accordance with the procedures
of this Article 2.
SECTION 2.11 EXCLUSION FROM ALLOWABLE EXPENSES. All costs and expenses
incurred by a Collaborator in attending Management Committee, Development
Committee or other committee meetings and in otherwise conducting
negotiations and relations with the other Collaborator shall by borne by the
party incurring the expense and shall not be treated as an Allowable Expense,
unless specified in SCHEDULE VI or authorized by the Management Committee.
SECTION 2.12 COOPERATION OF COLLABORATORS. Each Collaborator shall
furnish to the Management Committee or other applicable committee, subject to
the confidentiality obligations specified in Article 12 hereof, all
information that is reasonably required for purposes of this Agreement.
SECTION 2.13 DUTIES OF COLLABORATORS. Each Collaborator shall perform
its functions under this Agreement in a manner it believes in good faith to
be consistent with the intention of the parties in entering into this
Agreement. Nothing in this Agreement is intended to create a fiduciary duty of
one Collaborator to the other, nor shall it be deemed to require either
Collaborator to expend funds or commit resources in excess of those approved
by the Management Committee.
ARTICLE 3 - RESEARCH AND DEVELOPMENT ACTIVITIES
SECTION 3.1 PRIORITIES; PLANS; BUDGETS.
(a) PRIORITIES. The Development Committee, subject to the approval of
the Management Committee, shall establish the research, development and
regulatory strategies related to the Products in the Field. The initial
priority of the Collaboration shall be assigned to the development of IGF-1
for use in treating ALS and peripheral neuropathies.
(b) ANNUAL PLAN AND BUDGET. Attached as Schedule V hereto is the
initial development budget for each Collaborator's research and development
activities (including third party
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subcontractors) related to Products in the Major Markets for the period from
October 1, 1993 through December 31, 1993. For each calendar year beginning
January 1, 1994, the Development Committee shall prepare and submit to the
Management Committee for approval an annual development plan and budget for
Products in the Major Markets. The plans and budgets included in SCHEDULE V
and each subsequent development plan and budget approved by the Management
Committee are referred to in this Agreement as the "Development Plans".
(c) IMPLEMENTATION. The Development Plans will set forth the
responsibilities of each Collaborator. The parties anticipate that the
regulatory strategies specified in the Development Plan will be implemented
by Cephalon, who will be responsible for, among other things, the conduct of
all clinical trials of Products in the Major Markets (including
post-approval, quality of life, cost-benefit and any other studies necessary
for Regulatory or Pricing Approvals in the Major Markets), the recruitment of
investigators, the monitoring of clinical trials and the performance of any
other activities required to obtain Regulatory Approvals and Pricing
Approvals in the Major Markets. Each party will make available its clinical
and regulatory assets to the extent specified in the applicable Development
Plan. The design of the clinical trials for IGF-1 that were initiated by
Cephalon prior to the Effective Date are hereby deemed to be approved. The
Development Committee will prepare for submission to the Management Committee
the design of the clinical trials that are to be initiated for Products after
the Effective Date.
(d) ASSISTANCE BY EUROCETUS. If determined to be cost-effective by the
Management Committee, Cephalon may contract separately with EuroCetus, B.V.,
a subsidiary of Chiron, for assistance in the clinical development of SOD
bFGF and Cardioxane in the Major Markets outside North America. Cephalon
will reimburse EuroCetus directly for the costs of providing such service,
with the reimbursement treated as an Allowable Expense of Cephalon.
(e) CLINICAL DATA. All clinical data obtained from any studies
conducted pursuant to the Development Plans shall be jointly owned by
Cephalon and Chiron and may be used by either Collaborator inside the Field
and inside the Territory, subject to the JV's right to use all such data for
purposes of the Collaboration in the Territory. All clinical data related to
a Product that is developed pursuant to the Development Plans may be used by
either Collaborator or its licensees or joint development partners outside
the Field or outside the Territory only to the extent required by applicable
law (such as to report adverse experiences) and, in the case of data related
to a Product containing a Compound other than IGF-1, may be used for any
other purpose by a Collaborator or its licensees or joint development
partners outside the Field or outside the Territory
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upon commercially reasonable terms. In addition to the permitted uses
described above, all clinical data related to a Product containing IGF-1 (i)
may be used by CCP, inside or outside the Field, to the extent required under
the applicable Cephalon Agreement, and (ii) may be used by Kyowa Hakko Kogyo in
Japan to the extent required by law (such as to report adverse experiences)
or for any other purpose upon commercially reasonable terms if Cephalon is
obligated to provide Kyowa with exclusive use of such data in Japan; and
(iii) may be used by Chiron and Cephalon outside the Field and inside the
Territory upon commercially reasonable terms. If Cephalon is not obligated to
provide Kyowa Hakko Kogyo with the exclusive use of such data, Chiron may
use the clinical data in Japan upon commercially reasonable terms. The grant
of rights to use clinical data as specified in this paragraph (e) shall not
be deemed to grant any express or implied rights or license in or to any other
intellectual property of a Collaborator.
(f) REPORTS. Each Collaborator shall report to the Development
Committee, upon reasonable request (but not less than every three months),
the status of its activities under the applicable Development Plan. The report
may be in writing or, at the option of the Collaborator, in an oral
presentation made at the Development Committee meeting.
SECTION 3.2 CLINICAL SUPPLIES OF PRODUCTS.
(a) GENERAL. For Products other than IGF-1, the parties agree that
Chiron shall manufacture the Collaboration's requirements of all finished
Products to be used for clinical trials and other development activities
under this Agreement, unless otherwise determined by the Management Committee.
(b) CLINICAL SUPPLIES OF IGF-1. The Management Committee shall
determine the appropriate time for Chiron to begin supplying IGF-1 for
clinical purposes. Until that time, Cephalon will continue to use supplies of
IGF-1 produced at the Cephalon Facility for clinical trials of IGF-1,
including supplies needed to complete the U.S and European clinical trials of
IGF-1 in treating ALS and the pilot trials of IGF-1 in treating peripheral
neuropathies.
(c) SCALE-UP OF CHIRON FACILITY. Chiron will use the Chiron
Facility at Vacaville, California (the "Vacaville Facility") to manufacture
the Collaboration's requirements of IGF-1 for clinical purposes in accordance
with the Development Plans. Chiron will make reasonable efforts, including
making capital investments, to scale-up and expand the applicable Chiron
Facility as needed to allow sufficient GMP Grade Product to be made in
accordance with the quantity, schedule and other requirements of the
applicable Development Plan. Without limiting the foregoing, Chiron will
proceed to install [CONFIDENTIAL TREATMENT REQUESTED]
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[CONFIDENTIAL TREATMENT REQUESTED] at its Vacaville facility. The capital costs
incurred by Chiron for the scale-up activities shall not be an Allowable Expense
(except to the extent depreciation charges are included as a Cost). Chiron shall
take such other steps as may be commercially reasonable so that the Product
produced at the Chiron Facility is acceptable for purposes of obtaining
Regulatory Approvals in the Major Markets in accordance with the Development
Plans.
(d) CEPHALON FACILITY. Chiron and Cephalon will use the Cephalon
Facility to supply IGF-1 for clinical supplies, as described in paragraph
(b), and may use the Cephalon Facility as the Alternate Facility pursuant to
Section 4.5 hereof. Chiron and Cephalon also will discuss using the Cephalon
Facility to manufacture products of Chiron (other than Products) or, to the
extent determined by the Management Committee to be cost-effective, other
Products, provided that neither party is obligated to enter into an agreement
to use the Cephalon Facility for any such purposes.
SECTION 3.3 REGULATORY APPROVALS.
(a) ESTABLISHMENT LICENSES. A Collaborator who supplies a Product
to the Collaboration will be responsible for complying with all establishment
registration requirements and obtaining all other applicable approvals
required for the production of Products at the applicable manufacturing
facility (collectively, "ELAs").
(b) REGULATORY AND PRICING APPROVALS. It is intended that all
Regulatory Approvals and Pricing Approvals relating to Products in the Field
within the Major Markets will be owned by the Collaboration and will be
registered in the name of the JV, unless otherwise required by law, and the
JV shall be organized to permit such ownership. INDs and other pre-market
clearances related to a Product shall be owned by the party conducting the
clinical trials of the Product in the Field, unless otherwise required by
law. To the extent that any INDs or other premarketing clearances or
approvals related to any of the Products in the Field within the Major Markets
are registered in the name of either Collaborator, such Collaborator will take
such actions permitted by law as maybe necessary to transfer such clearances
and approvals to the JV and otherwise will exercise its rights under all such
clearances and approvals in a manner consistent with this Agreement.
(c) DILIGENCE. Each Collaborator shall use all commercially
reasonable efforts, commensurate with those efforts used for its other
products of similar potential and consistent with its obligations under the
Development Plans, to diligently obtain the approvals it is responsible for
under the Development
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Plans. Notwithstanding the foregoing, each Collaborator acknowledges that
there can be no assurance that any ELA, Regulatory Approval or Pricing
Approval will be obtained for a Product in any Major Market.
SECTION 3.4 BALANCING OF DEVELOPMENT COSTS.
(a) BALANCING. The parties deem their initial contribution of
technology to the Collaboration with respect to IGF-1 to be of equal value.
The parties intend that the Allowable Expenses funded by each of them to
manufacture and develop Products in the Major Markets during the period
between October 1, 1993 and the Commercialization Date will be equal as of
the Commercialization Date.
(i) Each party shall fund its own Allowable Expenses under the
Development Plans through December 31, 1994 or, if later, the date when a
Collaborator has incurred an aggregate of $20 million in Allowable Expenses
under the Development Plans; provided, however, that prior to that date
either Collaborator may, but shall not be required to, reimburse the other
Collaborator for any deficiency in the equal funding of Allowable Expenses,
bearing interest at the per annum rate equal to the greater of the Prime
Rate as reported in the BLOOMBERG FINANCIAL MARKETS, COMMODITIES & NEWS (or
any mutually acceptable successor thereto) or the rate of interest imputed
for the purposes of Federal income taxes (as such, the "Balancing Rate") on
the amount of such deficiency as calculated as of the end of each Calendar
Quarter; but in no event shall the Balancing Rate exceed the maximum
interest rate allowed by applicable law.
(ii) From and after the later of December 31, 1994 or the date when
one of the Collaborators has funded an aggregate of $20 million in Allowable
Expenses under the Development Plans, the other party shall reimburse such
party for 100% of the Allowable Expenses funded thereafter by such party,
plus interest at the Balancing Rate on the amount of such deficiency as
calculated as of the end of each Calendar Quarter for the period of the
deficiency, until the aggregate Allowable Expenses (excluding interest)
funded by both parties since October 1, 1993 are shared equally (i.e.,
balanced). Once the aggregate Allowable Expenses have been balanced, each
party shall be responsible for funding 50% of the aggregate Allowable
Expenses incurred thereafter by the parties. The adjustments for Allowable
Expenses shall be made on a quarterly basis under Section 6.5(b) hereof.
(iii) If the Commercialization Date occurs before the Allowable
Expenses incurred under the Development Plans are balanced in full, the
balancing shall continue under
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clause (ii) for such expenses in addition to any balancing required under
Section 6.2(a) hereof.
(iv) Notwithstanding anything to the contrary in this Section
3.4, if the Agreement is terminated for any reason before the Allowable
Expenses are balanced in full under clauses (i) or (ii) or Section 6.2(a),
then there shall be no balancing required except as may occur under Section
16.5(a).
ARTICLE 4 - COMMERCIALIZATION ACTIVITIES IN MAJOR MARKETS
SECTION 4.1 MARKETING STRATEGY IN MAJOR MARKETS. The Management
Committee shall establish a Marketing Committee which shall be responsible
for developing a marketing strategy for each Product on a country-by-country
basis within the Major Markets. The marketing strategy for each year shall be
included in a marketing plan that is approved by the Management Committee (as
so approved, a "Marketing Plan"). Each Collaborator shall appoint 50% of the
permanent and alternate members of the Marketing Committee. Any action or
decision by the Marketing Committee must be authorized by the approval of a
majority of each party's designated members on the committee, unless
otherwise specified in this Agreement. If the Marketing Committee can not
agree on a particular matter, the matter shall be submitted for resolution to
the Management Committee. If the Management Committee can not agree on a
particular matter, the matter shall be submitted for resolution in accordance
with Article 15 hereof.
Without limiting the Marketing Committee's functions, the Marketing
Committee shall, subject to the Management Committee's approval of the
Marketing Plan and subject to Section 4.6:
(i) select the Trademark and the form of label, package insert
and packaging for each Product in each Major Market, subject to Section 9.7
hereof;
(ii) determine the pricing and reimbursement strategy for each
Product in each Major Market;
(iii) coordinate pre-launch activities for Products in the
Major Markets, including symposia and other marketing efforts;
(iv) establish the schedule for Product launch in each Major
Market;
(v) establish anticipated sales targets for each Product in
each Major Market;
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(vi) identify the estimated capacity of Chiron and Cephalon
(if applicable), to be used for the production of Products containing IGF-1
pursuant to Section 4.5(b).
SECTION 4.2 RESPONSIBILITIES OF THE PARTIES.
(a) ALLOCATION OF RESPONSIBILITIES. The Marketing Plan shall
identify the responsibilities of each Collaborator (or its third party
subcontractors) in the promotion, marketing and distribution of Products in
the Major Markets. In determining the appropriate allocation of
responsibilities, the objective of the Marketing Committee is to maximize the
efficiency and effectiveness of the commercialization of the Products in the
Major Markets. Except as provided in this Article 4 or as otherwise
determined by the Management Committee, Chiron will be responsible for
marketing the Products in the Major Markets consistent with the Marketing
Plan and will perform all distribution functions related to the Products,
including, without limitation, distributor and wholesaler contracts,
warehousing, order taking and processing, delivery, invoicing, collections and
returns. However, the parties understand that (i) pursuant to the CIBA
Agreement, CIBA has a right of first refusal under certain circumstances to
sell or promote (including copromotion of) Products containing IGF-1 in the
Territory, and (ii) Cephalon has the exclusive right to detail Products
directly to neurologists in the Major Markets. The Management Committee shall
determine whether a third party marketing arrangement is appropriate in any
country or countries in the Major Markets and its approval shall be required
with respect to the terms of any selling or promotion arrangement with CIBA
on behalf of the JV, which arrangement shall be consistent with the terms of
this Agreement; the Management Committee's approval shall not be withheld
except on the grounds that the agreement is commercially unreasonable.
(b) DILIGENCE. To the extent a Collaborator is responsible for any
of the promotion, marketing or distribution of Products in the Major Markets,
it shall perform such activities using commercially reasonable efforts,
commensurate with those efforts used for its other products of similar
potential and consistent with its obligations under the applicable Marketing
Plans.
(c) EXPANSION OF RIGHTS.
(i) Cephalon shall have the right (but not the obligation) to
detail Products directly to all purchasers in a country in the Major Markets
if at any time during the term of this Agreement (A) Chiron, directly or
indirectly, participates in the marketing or sale of any product (other than
a product containing a Compound) that is approved for the same indication as
a Product marketed or sold in that country by Chiron on behalf
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of the Collaboration, and (B) Chiron has failed to diligently market the
Product under Section 4.2(b) above in that country. The election by Cephalon
to expand its rights to detail Products shall not affect Chiron's rights
under the terms of this Agreement.
(ii) Chiron shall have the right (but not the obligation) to
sell Products directly to neurologists in a country in the Major Markets if
at any time during the term of this Agreement (A) Cephalon, directly or
indirectly, participates in the marketing or sale of any product (other than
a product containing a Compound) that is approved for the same indication as
a Product detailed in that country by Cephalon on behalf of the
Collaboration, and (B) Cephalon has failed to diligently detail the Product
under Section 4.2(b) above in that country. The election by Chiron to expand
its rights to market Products shall not affect Cephalon's rights under the
terms of this Agreement.
(d) ALLOWABLE EXPENSES. In no event shall the Allowable Expenses
related to a detailing, selling or marketing activity exceed the Costs of the
most cost-effective alternative for the Product, as determined by the
Management Committee. The difference, if any, between the Costs of a
Collaborator permitted as an Allowable Expense and its actual costs shall be
the responsibility of that Collaborator.
SECTION 4.3 COMMERCIALIZATION OF PRODUCTS. The parties will explore and
implement, to the extent feasible, an arrangement that will permit each
Collaborator to report an approximately equal amount of Net Sales of Products
in the Major Markets for each accounting period, in accordance with generally
accepted accounting principles. Such arrangement, for example, could involve
dividing the sales markets for Products on a geographic basis.
SECTION 4.4 LABELLING. Subject to Section 4.6, the label, package
insert, packaging, advertising and promotional materials for each Product
shall be approved by the Management Committee. All such materials shall
identify the names of both Collaborators, unless prohibited by applicable
law.
SECTION 4.5 MANUFACTURE OF COMMERCIAL SUPPLIES OF PRODUCTS.
(a) GENERAL. Except as otherwise provided in this Section 4.5, the
Collaboration shall obtain all of its requirements for Products from Chiron.
It is expected that Chiron will manufacture the commercial supplies of
Products containing Compounds other than IGF-1. It is expected that Chiron
will use its Vacaville Facility and Cephalon will use the Cephalon Facility
for the production of commercial supplies of Products containing IGF-1 to the
extent contemplated under paragraph (b) below. Each of the Collaborators, to
the extent that it is manufacturing Products for the Collaboration, shall
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use commercially reasonable efforts to manufacture and supply the finished
Products for commercial purposes of the Collaboration in a cost-effective
manner and in accordance with the terms of this Agreement and a supplemental
manufacturing agreement to be entered into by the parties consistent with the
terms of this Section 4.5.
(b) ALLOCATION OF CAPACITY FOR PRODUCTS CONTAINING IGF-1. Chiron will
use commercially reasonable efforts, including the making of capital
investments, to scale-up and expand the Vacaville Facility to up to
[CONFIDENTIAL TREATMENT REQUESTED] capacity to produce GMP Grade IGF-1 in
quantities sufficient for the Collaboration's commercial purposes as specified
in the Marketing Plans. At the time of the initial determination by the
Management Committee that the [CONFIDENTIAL TREATMENT REQUESTED] capacity of
the Vacaville Facility is not adequate to meet the forseeable requirements of
the Collaboration, Cephalon may elect to use the Cephalon Facility as an
Alternate Facility to provide the additional increments of capacity, not to
exceed [CONFIDENTIAL TREATMENT REQUESTED] of capacity in the aggregate. Any
such election must be made promptly by Cephalon, but no later than thirty (30)
days after the Management Committee's determination is made. In such event,
Cephalon will use commercially reasonable efforts, including the making of
capital investments, to scale-up and expand its manufacturing facility in
Beltsville, Maryland to provide GMP Grade IGF-1 for such purpose. In the event
that the IGF-1 Product requirements of the Collaboration exceed the allocated
manufacturing capacity at the Chiron Facility and the Cephalon Facility, then
Chiron shall use commercially reasonable efforts to expand its Vacaville
Facility or another Chiron facility to produce quantities of Products
sufficient for the Collaboration's commercial purposes as specified in the
Marketing Plans. The schedule for meeting commercial scale capacity for the
Chiron Facility and the Cephalon Facility will be determined by the Management
Committee, taking into account the quantities of IGF-1 required by the
Collaboration, the anticipated regulatory schedule and the time and resources
required to complete additional capital improvements. Each Collaborator shall
take such other steps as may be commercially reasonable so that the Product
produced at its facility or facilities meets the projected shipment schedules
under the applicable Marketing Plan.
(c) EXCESS MANUFACTURING CAPACITY. If the dedicated manufacturing
capacity for the Products at the Chiron Facility and the manufacturing
capacity at the Cephalon Facility as approved in the Marketing Plan is
greater than the actual demand from the Products, then the supply requirements
for the Products shall be allocated between the Chiron Facility and the
Cephalon Facility as determined by the Management Committee.
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(d) SUPPLY SHORTAGES AND INTERRUPTIONS. If the manufacturing capacity
at the Chiron Facility and the Cephalon Facility which is allocated to the
manufacture of the Products under the applicable Marketing Plan is not
adequate to meet the market demand for a Product, each Collaborator will
allocate its other manufacturing capacity, if any, which is used to
manufacture the Compound contained in such Product for the production of such
Product in order to supply such Product in an amount equal to the lesser of
(i) the Product quantities allocated to such Collaborator as set forth in the
applicable Marketing Plan or (ii) such Collaborator's percentage of the
Product supply as set forth in the Marketing Plan multiplied by the actual
market demand for such Product. If a force majeure event under Section 17.3
affects the supply of a Product from the capacity allocated to a Collaborator
under a Marketing Plan, the Collaborator may allocate such capacity ratably
between the Collaboration's requirements and any supply obligations of the
Collaborator to a third party. If the Collaborators cannot satisfy their
obligations to make a Product under this Agreement for a period of sixty (60)
consecutive days, including any failure caused by a force majeure event under
Section 17.3 hereof, the Management Committee shall designate a manufacturer
(which may be a Collaborator) to make the Product until the Collaborators
are able to resume supply of the Products under the terms of this Agreement.
(e) COST-EFFECTIVENESS. The Management Committee will be responsible
for reviewing the cost-effectiveness of the supply of each Product and to
determine the amount of the manufacturing costs of each Collaborator that
will be permitted as an Allowable Expense. [CONFIDENTIAL TREATMENT REQUESTED]
In reviewing the cost-effectiveness of the supply of each Product, the
Management Committee may compare the Costs of manufacturing a Product at the
Chiron Facility and at the Cephalon Facility. If the per unit cost of
manufacturing a Product is higher at one of these facilities, the Management
Committee shall review the cost-effectiveness of such manufacturing and shall
determine the amount of the manufacturing costs that will be permitted as an
Allowable Expense; provided, however, that in considering the cost-
effectiveness of the manufacturing and the Costs permitted as Allowable
Expenses, the Management Committee shall recognize that a reasonable difference
in the costs of manufacturing at the Chiron Facility and the Cephalon Facility
is to be expected in relation to the costs and benefits of maintaining an
Alternative Facility, and is permitted as an Allowable Expense.
(f) PRODUCT QUALITY. Each Collaborator agrees that each shipment of the
Products manufactured by it will conform to the applicable Specifications and
will be made, stored, packaged,
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labeled and controlled by it in accordance with the process and procedures
contained in the applicable Regulatory Standards. Neither Collaborator will
modify any process or procedure used in the manufacture of a Product without
notifying the Management Committee and allowing the Management Committee time
to file any required notices with the applicable regulatory authorities and
obtain any regulatory approvals required in connection with the modification.
EXCEPT AS EXPRESSLY SET FORTH IN THE PRECEDING SENTENCE, NEITHER
COLLABORATOR MAKES ANY EXPRESS OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE,
CONCERNING THE PRODUCTS. SPECIFICALLY, BUT WITHOUT LIMITING THE FOREGOING,
NEITHER COLLABORATOR MAKES ANY EXPRESS OR IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, QUALITY OR
USEFULNESS OF THE PRODUCTS.
(g) FACILITY AUDIT AND INSPECTIONS. A Collaborator manufacturing
Products shall, upon reasonable advance notice, permit the other Collaborator
or any other authorized representative of the Collaboration to audit the
supplying Collaborator's manufacturing process and the manufacturing,
production and control records for the Products. Any such inspection shall be
conducted subject to the confidentiality obligations under this Agreement.
The supplying Collaborator shall take appropriate actions to adopt reasonable
suggestions of the other Collaborator to correct any deficiencies identified
by such inspection or audit. To supplement this provision, the other
Collaborator also may make arrangements, at its cost and expense (which
shall not be an Allowable Expense), to have one of its employees located on
the premises of the Chiron Facility or the Alternate Facility, as the case
may be, to participate in the monitoring of Product manufacture.
(h) DEPOSIT OF BIOLOGICAL MATERIALS. Each Collaborator shall deposit
with a mutually agreeable depository (such as the ATCC), upon terms customary
in the industry, all biological materials used in its manufacturing process,
and shall provide all manufacturing information required to enable a third
party to assume the manufacturing of Products under paragraph (e) above or
Section 16.5 hereof.
SECTION 4.6 ACTIVITIES OF CHIRON OUTSIDE THE FIELD.
(a) Cephalon recognizes that Chiron has development programs, and in the
future may initiate development programs, with respect to the Compounds for
indications outside the Field (a "Chiron Indication Product"). Nothing in
this Agreement shall be construed to limit such rights as Chiron may
otherwise have to develop or commercialize a Chiron Indication Product.
Except as provided in this Article 4.6, all aspects of development and
commercialization for Chiron Indication Products including, without
limitation, clinical development, regulatory strategy and filings, marketing
strategy and tactics, including pricing, may
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be determined solely by Chiron. Without limiting the generality of the
foregoing, for example, Chiron may determine the contents of labelling and
package inserts for any Chiron Indication Product and may determine the
prices at which any such product will be sold, even if the Chiron Indication
Product is identical to a Product (other than with respect to labelling and
package inserts). Chiron may make such determinations in its discretion
notwithstanding that such determinations may effect the corresponding aspect
of the Collaboration's development and commercialization of any Product that
is based upon the same Compound in a manner that may or may not be in the
best interest of the Collaboration.
(b) Notwithstanding (a) above, Chiron agrees to meet and confer in
good faith with Cephalon and consider any recommendation Cephalon may make
with respect to any action by Chiron with respect to Chiron Indication
Products that Cephalon reasonably believes may have any material effects upon
the development or commercialization of Products. Further, to the extent that
any aspect of the development or commercialization of a Chiron Indication
Product is related solely to the corresponding aspect of a Product approved
for sale in the Field based upon the same Compound, Chiron shall take
reasonable steps to conform such aspect of the Chiron Indication Product to
the decisions of the Management Committee regarding the corresponding aspect
of such Product. If a Collaborator is developing a product containing a
Compound for commercialization outside the Field, the Collaborators will use
commercially reasonable efforts to design the Collaboration's Product so that
it would be differentiated from such product.
To the extent that a Chiron Indication Product and a Product
based upon the same Compound are differentiated such that a decision by
Chiron with respect to an aspect of the Chiron Indication Product does not
determine a corresponding aspect of the Product, Chiron shall take reasonable
steps to preserve the differentiating aspect of the Chiron Indication Product
so as to facilitate the implementation of decisions of the Management
Committee regarding the corresponding aspect of the Product.
(c) Any Chiron Indication Product may be marketed under a
tradename, tradedress and trademark chosen by, owned by and registered by
Chiron. If Chiron elects to use the tradename, tradedress and trademark owned
by or registered to the JV for a product that is both a Product and a Chiron
Indication Product, the JV shall thereupon hold the trademark, tradedress
and/or tradename for the benefit of both Chiron and the Collaboration and
any goodwill related to the use thereof by the Parties within the Field shall
accrue to the JV and any goodwill related to the use thereof by Chiron
outside the Field shall accrue to the benefit of Chiron. Conversely, if the
JV elects to use a tradename, tradedress and/or trademark owned and
registered by
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Chiron with respect to such product, Chiron shall hold the trademark,
tradedress and/or tradename for the benefit of both Chiron and the
Collaboration and any goodwill related to the use thereof by the Parties
within the Field shall accrue to the JV and by Chiron outside the Field shall
accrue to the benefit of Chiron.
If a Chiron Indication Product has received Regulatory Approval
in the Territory prior to the receipt by the Collaboration of Regulatory
Approval of a Product containing the same Compound and Chiron reasonably
determines after consultation with the Management Committee that the Product
is not substantially differentiated from a Chiron Indication Product, Chiron
may elect to require the Collaboration to market such Product under the same
tradename, tradedress or trademark as is used in connection with such Chiron
Indication Product. If a Product has received Regulatory Approval in the
Territory prior to the receipt by Chiron of Regulatory Approval of a Chiron
Indication Product containing the same Compound, the Collaboration may
continue to use the tradename, tradedress or trademark approved by the
Management Committee notwithstanding the subsequent approval of such Chiron
Indication Product.
ARTICLE 5 - LICENSES
SECTION 5.1 CROSS-LICENSES PRIOR TO FORMATION OF JV.
(a) PATENT RIGHTS. Cephalon hereby grants to Chiron a
royalty-free, nonexclusive license or sublicense in and to the patent rights
included in the Cephalon Technology for use in the Field to develop and use
Products in the Territory in accordance with the Development Plans. Chiron
hereby grants to Cephalon a royalty-free, nonexclusive license or sublicense
in and to the patent rights included in the Chiron Technology for use in the
Field to develop and use Products in the Territory in accordance with the
Development Plans. The cross-licenses in this clause (a) shall terminate
upon the effectiveness of the licenses in Sections 5.2 and 5.3.
(b) PERPETUAL KNOW-HOW LICENSES. Subject to the restrictions on the
use of clinical data set forth in Section 3.1(e), Cephalon hereby grants to
Chiron a perpetual, nonexclusive, royalty-free license (except for the
royalty payable to the JV under Section 8.1 hereof) to all Technical
Information included in the Cephalon Technology in the Territory, for any use
by Chiron, whether inside or outside the Field. Subject to Section 3.1(e) and
7.4, Chiron hereby grants to Cephalon a perpetual, nonexclusive, royalty-free
license or sublicense (except for the royalty payable to the Chiron under
Section 6.4 hereof) to all Technical Information that is included
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in the Chiron Technology in the Territory, for any use by Cephalon, whether
inside or outside the Field.
SECTION 5.2 LICENSES TO JV.
(a) CEPHALON. Upon the formation of the JV, Cephalon will grant to
the JV an exclusive license in and to the Cephalon Technology for use in the
Field to develop, make, have made, use and sell Products in the Territory,
subject to the perpetual cross-licenses under Section 5.1(b).
(b) CHIRON. Upon the formation of the JV, Chiron will grant to the
JV an exclusive license in and to the Chiron Technology for use in the Field
to develop, make, have made, use and sell Products in the Territory, subject
to the perpetual cross-licenses under Section 5.1(b).
(c) JV TECHNOLOGY. All rights licensed to the JV by the
Collaborators pursuant to this Article 5, together with any invention or
discovery, whether or not patentable, made solely or jointly by a JV employee
after the Effective Date, are collectively referred to herein as the "JV
Technology".
SECTION 5.3 LICENSES FROM JV TO COLLABORATORS IN THE MAJOR MARKETS.
Effective upon the formation of the JV, the JV hereby grants to each of
Cephalon and Chiron a nonexclusive, royalty-free license, with no right to
sublicense, in and to the JV Technology, to the extent required for each
party to conduct its responsibilities in the Major Markets under this
Agreement or any Development Plan or Marketing Plan.
SECTION 5.4 LICENSE FROM JV TO CHIRON IN THE ROYALTY TERRITORY.
Effective upon the formation of the JV, the JV hereby grants to Chiron an
exclusive, worldwide right and license in and to the JV Technology to make,
have made, use and sell Products in the Royalty Territory, subject to the
royalty obligation and other terms and conditions of Article 8 hereof.
SECTION 5.5 OPTIONAL RIGHTS.
(a) SIBIA RIGHTS. Cephalon hereby grants to Chiron and the JV a
nonexclusive option to include in the license under Sections 5.1 or 5.2, as
applicable, the SIBIA Rights of Cephalon inside the Field. If Chiron or the
JV elects in writing to exercise the option inside the Field for purposes of
the Collaboration, the SIBIA Rights shall automatically become part of the
Cephalon Technology and any third party royalties payable as a result of the
use by the JV of the SIBIA Rights in the Major Markets shall be deemed a
Third Party Royalty to be paid by the JV. [CONFIDENTIAL TREATMENT REQUESTED]
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[CONFIDENTIAL TREATMENT REQUESTED] If at any time prior to Chiron's exercise
of its option Cephalon proposes to transfer or terminate any of the SIBIA
Rights, Cephalon shall provide Chiron with notice thereof, sufficiently in
advance to allow Chiron to exercise its option or otherwise obtain such rights
directly from SIBIA. If Chiron exercises its option, Cephalon shall maintain
the SIBIA Rights in accordance with the provisions of Section 5.10.
(b) CEPHALON IGF-1 TECHNOLOGY OUTSIDE THE FIELD.
Except as provided in this Section 5.5; Cephalon shall not develop or
commercialize with any third party, or license intellectual property rights
from any third party related to the development or commercialization of a
product containing IGF-1 for an indication outside the Field using Cephalon
Technology or any proprietary technology that it developed pursuant to the
Development Plans, without the prior written consent of Chiron. Cephalon
currently owns or has license rights to certain technology relating to the
use of IGF-1 for indications outside the Field ("Nonfield Indications"). All
of these Nonfield Indications and the related technology rights are
identified on Schedule VIII hereto. In addition, Cephalon may develop, in the
course of performing activities pursuant to the Development Plans or
otherwise, data which indicates that IGF-1 may have utility for an indication
outside the Field (the "Additional Nonfield Indications"). Cephalon shall
notify Chiron in writing if it develops any such data with respect to an
Additional Nonfield Indication, and such notice shall contain a summary of such
data in reasonable detail to enable Chiron to analyze the merits of the
possible utility. Cephalon hereby grants to Chiron the right to obtain from
Cephalon, exclusive rights to the technology and related Technical Information
for any of the Nonfield Indications and Additional Nonfield Indications for use
outside the Field. Chiron shall notify Cephalon if it wishes to negotiate a
transaction with respect to a Nonfield Indication or Additional Nonfield
Indication. If Chiron and Cephalon, after good faith negotiations, have failed
to reach agreement within 90 days as to the appropriate terms and fair market
compensation for such indication, the parties will submit the determination of
fair market compensation to arbitration pursuant to Section 15.2 hereof.
Notwithstanding the foregoing, Chiron may elect to have the Collaboration
obtain such rights to the Nonfield Indication or Additional Nonfield
Indication on terms mutually acceptable to Chiron and Cephalon. The parties
intend that such terms shall reflect a profit participation for Cephalon that
represents the economic equivalent of a commercially reasonable royalty and the
equal sharing by Chiron and Cephalon of future development costs
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with respect to such indication. The rights of Chiron under this Section 5.5(b)
are subject to any approvals of the CCP Board of Directors or partners
required under the applicable Cephalon Agreements. Cephalon shall use its best
efforts to obtain such approvals, if required.
SECTION 5.6 RETAINED RIGHTS. Each of Chiron and Cephalon reserves the
right to use, respectively, the Chiron Technology and the Cephalon
Technology, for any purpose whatsoever outside the Field and/or outside the
Territory, without liability to the other party or to the JV, except as may
be otherwise specified in Sections 5.5(b), and 6.2(b) and 6.3 hereof.
SECTION 5.7 PRIOR RIGHTS. The rights granted or to be granted by
Cephalon to Chiron and the JV under this Agreement are subject in all
respects to the prior rights of third parties under the Cephalon Agreements.
The rights granted or to be granted by Chiron to Cephalon and the JV under
this Agreement are subject in all respects to the prior rights of third
parties under the Chiron Agreements.
SECTION 5.8 INVENTIONS. All inventions and discoveries resulting from
the Collaboration, whether or not patentable, shall be owned by the
Collaborator making the invention or discovery. All Joint Technology shall be
owned by the JV or, in the absence of the JV, by the Collaborators jointly.
SECTION 5.9 NEW TECHNOLOGIES.
(a) THIRD-PARTY RIGHTS. The Management Committee may acquire from
third parties, if commercially reasonable, such rights to new technology in
the Field as are necessary or desirable for the JV, directly or indirectly,
to make, use and sell Products. The JV (and not the Collaborators
individually) shall be responsible for any payments or royalties for such
rights attributable to the sale of Products in the Major Markets owing to a
third party under an agreement approved by the Management Committee.
(b) ADDITIONAL TECHNOLOGY OF COLLABORATORS. The parties
contemplate that Chiron's biologically-active small molecules and its
proprietary molecular diversity technology and other proprietary Chiron
compounds other than the Chiron Products may be added to the Collaboration,
upon terms to be mutually agreed to by the Collaborators. Similarly, Cephalon
and Chiron may from time to time agree in writing to include within the scope
of this Agreement any other composition, product or technology of a
Collaborator, upon terms to be mutually agreed to by the Collaborators. Unless
and until an agreement is executed providing for the addition of technology to
the Collaboration, the Collaborator shall be free to develop or dispose of such
technology in any manner it sees fit.
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SECTION 5.10 MAINTENANCE OF TECHNOLOGY. In addition to its
obligations under Section 9.1, Cephalon and Chiron shall notify the other
Collaborator before allowing any intellectual property right included in the
Cephalon Technology or the Chiron Technology, as applicable, the loss of
which would have a material adverse effect on the business of the
Collaboration to lapse, expire or terminate before its stated expiration or
termination date, sufficiently in advance to allow the other Collaborator to
seek to obtain the rights to such technology. Each Collaborator shall use
all commercially reasonable efforts to maintain in full force and effect any
license or other agreement pursuant to which it derives rights included in
the Cephalon Technology or the Chiron Technology, as the case may be, the
loss of which would have a material adverse effect on the business of the
Collaboration and shall promptly notify the other if it receives notice or
otherwise becomes aware of any default under any such agreement. Without
limiting the foregoing, neither Collaborator shall amend or modify any such
third-party agreement in a manner that would limit the benefits or expand the
obligations of the Collaboration with respect to any such rights without the
prior consent of the other Collaborator, which consent shall not be unreasonably
withheld. Neither Collaborator shall transfer or assign to an unaffiliated party
any such third party agreement or any other intellectual property right that is
licensed to the other Collaborator or the JV under this Agreement, without the
prior approval of the Management Committee.
SECTION 5.11 SUBLICENSING OF TECHNOLOGY. Cephalon may sublicense its
rights under Section 5.1(b) to its licensees or sublicensees to the extent
required by the corresponding Cephalon Agreement, and Chiron may sublicense
its rights to its licensees or sublicensees. The JV may sublicense all or
part of the JV Technology to one or more third parties, subject to the
execution by the third party of a sublicense agreement satisfactory to the
Management Committee.
SECTION 5.12 DISCLOSURE OF TECHNOLOGY. Promptly after the Effective
Date and from time to time thereafter during the term of this Agreement, each
Collaborator shall promptly disclose to the other the Technical Information
which becomes known to it to the extent licensed to the other Collaborator or
the JV under this Article 5. In addition, each Collaborator shall promptly
disclose to the other Collaborator, in writing, any invention
or discovery included in its license to the other Collaborator of the
Cephalon Technology or Chiron Technology, as the case may be, under Article 5.
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ARTICLE 6 - COMPENSATION IN MAJOR MARKETS
SECTION 6.1 EQUAL SHARING OF OPERATING PROFITS AND LOSSES. The
Operating Profits and Operating Losses shall be shared equally by Cephalon
and Chiron, except for the special allocation described in Section 6.2(a)
hereof.
SECTION 6.2 SPECIAL ALLOCATIONS.
(a) BALANCING OF COSTS AFTER COMMERCIALIZATION DATE. To the extent
the Allowable Expenses of the Collaborators are not equally funded as of the
Commercialization Date, the Collaborator who funded the greater share of
Allowable Expenses shall be entitled to receive from sales of Products in the
Major Markets, prior to the allocation of Operating Profits under Section
6.1, a special allocation equal to [CONFIDENTIAL TREATMENT REQUESTED] plus
[CONFIDENTIAL TREATMENT REQUESTED]. These credits shall be applied until
the Collaborator has received 100% of its excess Allowable Expenses as of the
Commercialization Date, plus interest at the Balancing Rate (as defined in
Section 3.4) on the amount of such excess for the period of the excess amount.
(b) SALES FOR DIABETES. The parties acknowledge that sales of a
Product containing IGF-1 for diabetic neuropathy may overlap with sales of a
product containing IGF-1 for diabetes. The parties therefore agree that if an
IGF-1 Product of the JV receives Regulatory Approval for the treatment of
diabetic neuropathy or a Collaborator receives Regulatory Approval in the
Territory of another product containing IGF-1 for the treatment of diabetes,
the Collaborators will [CONFIDENTIAL TREATMENT REQUESTED] The allocation
established by the parties shall apply regardless of which indication is
approved first, and shall apply in lieu of any provisions of Section 6.3
that might otherwise be applicable.
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SECTION 6.3 OFF-LABEL SALES IN THE MAJOR MARKETS.
(a) If a Product of the Collaboration receives Regulatory Approval
in the Field in a country in the Major Markets prior to the receipt by Chiron
(or its licensee or joint development partner) of Regulatory Approval in such
country of a product containing the same Compound for an indication outside
the Field then all sales of such Product used for an indication (whether
inside or outside the Field) in that country shall be included in the Net
Sales used to calculate Operating Profits and, if applicable, any royalty
payable to Chiron pursuant to Section 6.4 with respect to such country;
provided that all costs and expenses associated with such Net Sales shall be
included as an Allowable Expense. Notwithstanding the foregoing, [CONFIDENTIAL
TREATMENT REQUESTED] shall be excluded from the Net Sales used to calculate
Operating Profits and, if applicable, any royalty payable to Chiron pursuant
to Section 6.4 and in lieu thereof Chiron shall pay to the JV a royalty equal to
[CONFIDENTIAL TREATMENT REQUESTED]; provided that all costs and expenses
associated with such excluded Net Sales shall not be included as an Allowable
Expense. [CONFIDENTIAL TREATMENT REQUESTED]
(b) Upon the receipt by Chiron (or its licensee or joint
development partner) of Regulatory Approval of a product outside the Field
containing the same Compound as a Product, in a country in the Major Markets,
all sales thereafter of the Product for use in any indication outside the
Field in such country (according to market reports accepted in the industry)
shall not be counted for purposes of calculating, with respect to such
country (i) Operating Profits, (ii) any royalty payable to the JV under
Section 6.3(a) above, or (iii) any royalty payable to Chiron pursuant to
Section 6.4. All Costs associated with such sales shall not be permitted as
Allowable Expenses for any purpose.
SECTION 6.4 ROYALTIES TO CHIRON ON SALES OF CHIRON PRODUCTS.
(a) BASE ROYALTY. The JV shall pay to Chiron a reasonable royalty
on Net Sales of Chiron Products in the Major Markets. The royalty rate for
each Chiron Product shall be negotiated by Cephalon and Chiron in good faith
no later than the time an application for a Regulatory Approval is submitted
in a Major Market for the corresponding Chiron Product. The royalty rate
shall be the amount a third party would be willing to pay,
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taking into consideration all relevant factors, including the value of the
technology contributed by Chiron, the market opportunity for the Chiron
Product, the availability of patent protection, the necessity of paying
royalties to third parties, and the Costs and risks incurred or to be
incurred by the Collaborators for development of the Chiron Product. The
royalty rate for Net Sales of Products in the Major Markets shall not be less
than [CONFIDENTIAL TREATMENT REQUESTED] nor more than [CONFIDENTIAL TREATMENT
REQUESTED] for a Chiron Product having Market Exclusivity (but which maximum
rate shall not be more than [CONFIDENTIAL TREATMENT REQUESTED] in the case of a
Chiron Product if the preclinical and Phase I clinical data that is provided by
Chiron is substantially sufficient to permit clinical testing of the
corresponding Product in the Field), and shall not be less than [CONFIDENTIAL
TREATMENT REQUESTED] nor more than [CONFIDENTIAL TREATMENT REQUESTED] for other
Chiron Products.
(b) ADJUSTMENTS TO ROYALTY
(i) The royalty payable under Section 6.4(a) for a Chiron
Product with Market Exclusivity in a particular country in the Major Markets
shall be reduced by an equitable amount to be determined by the Management
Committee with respect to Net Sales of such Chiron Product in the country if
a product containing the same Compound either (A) is being sold by a third
party (other than third parties having rights through a Collaborator) in that
country for the same indication, or (B) is approved for an indication in that
country covered by the patent used to establish Market Exclusivity for the
indication in the same country and there is no other basis for establishing
Market Exclusivity as to the Chiron Product indication in that country.
(ii) The royalty payable under Section 6.4(a) for a Chiron
Product without Market Exclusivity in a particular country in the Major
Markets shall be increased to the rate used in a country where the Chiron
Product has Market Exclusivity, if Chiron can reasonably demonstrate that
even without Market Exclusivity, there is no significant competition for the
Chiron Product with respect to the indication for which the Chiron Product
received Regulatory Approval in the country. For purposes of this provision,
"significant competition" means sales of a product by a third party or third
parties (other than third parties having rights through a Collaborator)
constitute more [CONFIDENTIAL TREATMENT REQUESTED]
(iii) If a royalty rate determined pursuant to Section 6.4(a)
is such that the JV's profit percentage from sales of Chiron Products in the
Major Markets is greater than or less than the percentage anticipated by the
parties as of the Effective Date, Cephalon and Chiron shall meet and confer
as to whether the royalty rates should be increased or decreased to
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provide the JV and Chiron with a fair allocation of the economic benefits in
the Major Markets. Any such adjustment may be made on a country-by-country
and Product-by-Product basis.
SECTION 6.5 CALCULATION OF OPERATING PROFITS.
(a) PRIOR TO FORMATION OF JV.
(i) REPORTING. Within twenty-one (21) days after the end of each
month after the Effective Date until the formation of the JV, Cephalon shall
submit to Chiron a report detailing all Allowable Expenses funded by Cephalon
for the applicable month. Within thirty (30) business days after the end of
a Calendar Quarter, Cephalon shall also submit to Chiron a final report
detailing all Allowable Expenses funded by Cephalon for the applicable
quarter.
(ii) STATEMENT OF ALLOWABLE EXPENSES. Based on the reports of
Cephalon, Chiron shall prepare a pro forma statement of its Allowable
Expenses, combined Allowable Expenses and an inception-to-date report of each
Collaborator's Allowable Expenses which it shall send to Cephalon no later
than forty (40) days after the end of the applicable month. In addition,
based on the quarterly reports of Cephalon, Chiron shall prepare a final pro
forma statement of combined Allowable Expenses and a final inception-to-date
report of each Collaborator's Allowable Expenses for the Cephalon Quarter,
which it shall send to Cephalon no later than sixty (60) days after the end
of the Calendar Quarter. Within fifteen (15) days after receiving the
monthly report, the Collaborators shall make any payments, if required, to
accomplish balancing under Section 3.4 (a) (ii) hereof.
(iii) CONFIRMATION. Each Collaborator's chief financial officer
shall confirm on an annual basis that the quarterly reports furnished during
the year were prepared in accordance with the accounting principles and
methodology authorized pursuant to Section 2.3 (c) hereof.
(b) JV REPORTING. Prior to the formation of the JV, the Management
Committee will determine the appropriate reporting requirements and
procedures, including the timing and method of calculating the preliminary
and the final Operating Profits of the JV, the reporting of Net Sales in the
Royalty Territory and the manner in which payments or refunds of overpayments
will be made, but in no event shall such payments be made less frequently
than sixty (60) days after each Calendar Quarter. The reporting requirements
and procedures of the JV will be based on the approved Marketing Plans. The
Management Committee shall review the reporting requirements and procedures
of the JV when appropriate in light of changes to the Marketing Plans,
changes in or financial statement reporting requirements. Notwithstanding
the foregoing, the Collaborators agree that Chiron will be responsible for
compiling the financial statements
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of the JV and, if the JV is organized as a partnership, shall be the Tax
Partner for federal income tax purposes.
PART III - ACTIVITIES IN ROYALTY TERRITORY
ARTICLE 7 - DEVELOPMENT AND COMMERCIALIZATION ACTIVITIES IN
ROYALTY TERRITORY
SECTION 7.1 DEVELOPMENT AND COMMERCIALIZATION RESPONSIBILITIES. Chiron
shall be responsible for conducting, at its own cost and expense, all
activities relating to the development, manufacture and marketing of the
Products in the Royalty Territory including, without limitation the
establishment of a sales force or distribution network and the promotion and
sale of Products. All Regulatory Approvals and Pricing Approvals in the
Royalty Territory shall be in the name of Chiron.
SECTION 7.2 COORDINATION WITH COLLABORATION.
(a) Chiron shall consult with the Development and Marketing Committees
with respect to the following activities:
(i) the preparation of its development and marketing plans for the
Products in the Royalty Territory;
(ii) the preparation of Product labelling and promotional materials
to be used with Products in the Royalty Territory;
(iii) the designation of Trademarks for the Products in the Royalty
Territory; and
(iv) the choice of supplier of the Products to be developed or sold
in the Royalty Territory.
Subject to Section 4.6, the plans for these activities will be submitted to
the Management Committee for review and approval reasonably in advance of the
specified activity, which approval shall not be withheld except on the
grounds that the proposal is commercially unreasonable. The members of the
Management Committee in reviewing and approving the proposed activities of
Chiron shall act in the interests of the Collaboration and not with regard to
the individual interests of Chiron or Cephalon. Chiron shall keep the
Management Committee informed of its progress under its development and
marketing plans in the Royalty Territory.
(b) Chiron shall not sublicense or enter into any comarketing,
copromotion or similar arrangement in the Royalty Territory without the prior
approval of the Management Committee
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(which consent shall not be unreasonably withheld), excluding wholesaling,
distribution and consignment arrangements, where the third party does not
market or promote the Products. Nothwithstanding the foregoing, CIBA is
hereby approved for purposes of marketing Products in the Royalty Territory,
upon terms to be approved by the Management Committee (which approval shall
not be withheld except on the grounds that the terms are commercially
unreasonable).
SECTION 7.3 DILIGENCE IN COMMERCIALIZATION OF PRODUCTS. Chiron shall use
commercially reasonable efforts, commensurate with those efforts used for its
other products of similar potential and consistent with its obligations under
the development and marketing plans approved under Section 7.2 hereof, to
commercialize the products in the Royalty Territory and to obtain all
Regulatory Approvals and Pricing Approvals needed in the Royalty Territory
for such purposes.
SECTION 7.4 OWNERSHIP OF DATA. All clinical data developed by Chiron for
purposes of Regulatory Approvals in the Royalty Territory shall be owned by
Chiron, but may be used in the Field and Territory by Chiron, Cephalon and
the JV pursuant to the licenses granted under Article 5 hereof and may be
used by Chiron outside the Field and outside the Territory without limitation.
SECTION 7.5 NO ALLOWABLE EXPENSES. None of the costs and expenses
incurred by Chiron in connection with the Royalty Territory shall be an
Allowable Expense hereunder unless expressly approved as such by the
Management Committee.
SECTION 7.6 ASSISTANCE BY THE JV. Chiron may request the assistance of the
JV or Cephalon in the development and commercialization activities related to
the Product. Any such assistance shall be provided upon mutually acceptable
terms.
SECTION 7.7 CONTINGENT CEPHALON MARKETING RIGHTS.
(a) EVENTS. Cephalon shall have the right (but not the obligation) to
detail Products in a country within the Royalty Territory if:
(i) Chiron participates, directly or indirectly, in the
marketing, sale or distribution of any product in that
country that directly competes with an indication included
in a Regulatory Approval for a Product in the same country;
and
(ii) Chiron has failed to diligently develop and commercialize
such Product under Section 7.3 hereof in that country.
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(b) PROCEDURES. Cephalon shall give Chiron written notice of the
existence of the conditions described in clause (a) above, and Chiron shall
have a period of 90 days in which to cure. If the conditions have not been
adequately cured in Cephalon's reasonable judgment by the end of such period,
Cephalon's right to detail shall be effective upon written notice from
Cephalon to Chiron at which time Cephalon shall be entitled to detail all
Products in such country on a nonexclusive basis. Cephalon shall be paid a
reasonable fee by the JV for such activities and Cephalon's costs to detail
the Products shall not be an Allowable Expense. Chiron's obligations to
compensate the JV under Article 8 shall continue as to any Products continued
to be marketed and sold by it or detailed by Cephalon, except that the
royalty payable with respect to such Net Sales shall be reduced to the rate
determined under Section 8.1(b) hereof as to any Product that Cephalon is
detailing. The election by Cephalon to detail Products in the Royalty
Territory shall not affect Chiron's rights under this Agreement.
ARTICLE 8 - ROYALTIES AND REPORTS, ETC.
SECTION 8.1 ROYALTIES. In consideration of the licenses granted to
Chiron under Section 5.4 hereof, Chiron shall pay to the JV in each country
within the Royalty Territory a royalty equal to:
(a) [CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of a Product
containing IGF-1 for a particular indication in any country where the Product
has Market Exclusivity for that indication; and
(b) [CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of a Product
containing IGF-1 for a particular indication in any country where the Product
does not have Market Exclusivity for that indication; and
(c) in the case of any Product containing a Compound other than
IGF-1, a reasonable royalty to be negotiated by the Collaborators in good
faith (which shall be not less than [CONFIDENTIAL TREATMENT REQUESTED] of Net
Sales), to be determined upon the request of either Collaborator but in no event
later than the first commercialization of a Product in the Royalty Territory.
SECTION 8.2 ROYALTY RATE ADJUSTMENTS.
(a) The royalty rate payable under Section 8.1(a) shall be reduced
by an equitable amount to be determined by the Management Committee with
respect to a Product in a country in the Royalty Territory if a product
containing the same Compound either (i) is being sold by a third party (other
than a third party having rights through a Collaborator) in that country for
the same indication, or (ii) is approved for an indication in that country
covered by the patent used to establish Market
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Exclusivity for the indication in the same country and there is no other basis
for establishing Market Exclusivity as to the Product indication in that
country.
(b) The royalty rate payable under Section 8.1(b) for a particular
country in the Royalty Territory shall be increased to the rate specified in
Section 8.1(a) with respect to a Product in such country in the Royalty
Territory if Cephalon can reasonably demonstrate that even without Market
Exclusivity, there is no significant competition for the Product in that
country with respect to the indication for which the Product received
Regulatory Approval in the country. For purposes of this provision,
"significant competition" means sales of a product by a third party or third
parties (other than third parties authorized by a Collaborator under this
Agreement) constitute more than [CONFIDENTIAL TREATMENT REQUESTED]
(c) If a royalty rate specified in Section 8.1 is such that Chiron,
after paying such royalties, would not receive a fair return on sales of the
Products because of market conditions outside of its control, Cephalon and
Chiron shall meet and confer as to whether the royalty rates should be
reduced to provide Chiron with a fair allocation of the economic
benefits in the Royalty Territory. Conversely, if the royalty rates specified
in Section 8.1 are such that the JV's share of profits from the royalties on
sales of Products in the Royalty Territory is less than the share of profits
anticipated by the parties as of the Effective Date, Cephalon and Chiron shall
meet and confer as to whether the royalty rates should be increased to
provide the JV with a fair allocation of the economic benefits in the Royalty
Territory, but in no event shall any such increase exceed a royalty rate of
[CONFIDENTIAL TREATMENT REQUESTED] of Net Sales. Any such adjustment may be made
on a country-by-country and Product-by-Product basis.
(d) The royalty rates payable by Chiron to the JV under Section
8.1 shall be subject to increase to provide Cephalon with a share of
Operating Profits of the JV that is sufficient to pay any royalty or other
compensation Cephalon may owe CCP under an Amended and Restated Product
Development Agreement dated as of August 11, 1992 (the "CCP Agreement"), in a
country within the CCP Territory. For purposes of this clause (d), the term
"CCP Territory" means the geographic area encompassed by the following
countries on the date hereof: Albania, Andorra, Bulgaria, the Commonwealth of
Independent States, Cyprus, Czechoslovakia, Gibraltar, Hungary, Iceland,
Liechtenstein, Malta, Monaco, Poland, Romania, San Marino, Turkey and
Yugoslavia. The term "CCP Territory" shall also include the geographic area
encompassed by any of the republics that were formerly part of the U.S.S.R.
and Yugoslavia, regardless of whether such republics are as of the date hereof
members of the
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Commonwealth of Independent States or Yugoslavia, as applicable. Chiron and
Cephalon shall meet and confer as to whether the royalty ratees payable by
Chiron to the JV under Section 8.1 should be increased with respect to any
country or Product to provide Cephalon with a share of Operating Profits of
the JV that is sufficient to provide a fair return to Cephalon.
(e) The royalty rates under Section 8.1 also are subject to
reduction under Sections 9.2 and 9.3 hereof.
SECTION 8.3 ALLOCATIONS OF NET SALES IN THE ROYALTY TERRITORY.
(a) OFF-LABEL SALES. If a Product of the Collaboration receives
Regulatory Approval in the Royalty Territory prior to the receipt by Chiron
(or its licensee or joint development partner) of Regulatory Approval in the
Royalty Territory of a product containing the same Compound as the Product
for an indication outside the Field, then all sales of such Product used for
any indication (whether inside or outside the Field) in the Royalty Territory
shall be included in the Net Sales used to calculate the royalty payable by
Chiron pursuant to Section 8.1. Notwithstanding the foregoing, [CONFIDENTIAL
TREATMENT REQUESTED] All sales of the Product used in any indication outside
the Field (according to market reports accepted in the industry) in a country
in the Royalty Territory shall be excluded for purposes of calculating the
royalty payable by Chiron pursuant to Section 8.1 in such country when Chiron
(or its licensee or joint development partner) receives Regulatory Approval
for an indication outside the Field for such Product either in such country
itself or in any country in the Major Markets, whichever occurs first.
(b) SALES FOR DIABETES. The portion of Net Sales in any country in
the Royalty Territory that is deemed to be sales of an IGF-1 Product for
diabetic neuropathy in such country shall be determined in accordance with
Section 6.2(b).
SECTION 8.4 THIRD PARTY ROYALTIES. Chiron shall be responsible for any
royalties or other compensation owed by either Collaborator under the
agreements specified on SCHEDULE IV to any third party as a result of
Chiron's commercialization of Products in the Royalty Territory including,
without limitation, compensation payable pursuant to the CIBA Agreement and
pursuant to the SIBIA Rights. Notwithstanding the foregoing: (i) Cephalon
shall be responsible for any royalties owed by it pursuant to the CCP
Agreement, (ii) Chiron may offset royalties
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payable to certain third parties to the extent provided in Section 9.2(e),
and (iii) Chiron may include in the determination of Net Sales subject to
royalty under Section 8.1, a deduction for any royalty payable to a third
party in any country in the Royalty Territory under any license or similar
agreement that has been approved by the Management Committee under Section
5.9, but in no event shall the total deductions for such royalties reduce the
royalty payment by more than 50% in the aggregate.
SECTION 8.5 PAYMENT OF ROYALTIES. Royalties payable to the JV under
Section 8.1 shall be due within sixty (60) days after the end of the Calendar
Quarter in which Net Sales were recorded by Chiron.
SECTION 8.6 REPORTS. Unless otherwise agreed by Cephalon and Chiron,
Chiron shall deliver to the JV within sixty (60) days after the end of each
Calendar Quarter in which royalties are due a report of the chief financial
officer of Chiron, setting forth in reasonable detail the calculation of the
royalties payable to the JV for such Calendar Quarter, including the Net
Sales on a Product by Product and country-by-country basis. In addition,
within ninety (90) days after the close of each calendar year, Chiron, upon
Cephalon's request, shall cause its independent public accountants to prepare
a report confirming the procedures performed in reviewing the accuracy of the
aggregate Net Sales and calculation of royalties payable to the JV under
Section 8.1 for that calendar year. Cephalon shall reimburse Chiron for the
reasonable costs of such review.
SECTION 8.7 CURRENCY RESTRICTIONS. If Chiron is prevented from making any
royalty payment to the JV under this Agreement by virtue of restrictions on
currency conversion or repatriation under the statutes, laws, codes or
governmental regulations of the country from which the payment is to be made,
then such royalty payments may be paid by depositing them in the currency in
which accrued to the JV's account in a bank acceptable to the JV in the
country whose currency is involved.
SECTION 8.8 TAXES. All taxes, assessments and fees of any nature levied or
incurred on account of any payments accruing under this Agreement by
national, state or local governments in the Royalty Territory, will be
assumed and paid by Chiron, except taxes levied thereon as income to the JV.
If taxes payable by the JV are required to be withheld by Chiron, they will
be deducted from such payments due to the JV and will be paid by Chiron for
the account of the JV.
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PART IV - GENERAL PROVISIONS
ARTICLE 9 - INTELLECTUAL PROPERTY MATTERS
SECTION 9.1 INTELLECTUAL PROPERTY PROTECTIONS.
(a) CONTROL. Each Collaborator shall be responsible for and shall have
the right to control the prosecution, maintenance, reissue, reexamination,
renewal and extension of the patent applications, issued patents and
Trademarks included in the intellectual property in the Territory licensed by
it to the other Collaborator or to the JV pursuant to Article 5 hereof. Each
Collaborator, upon reasonable request, shall report to the Management
Committee the status of any such activities and shall furnish copies of any
correspondence, file wrappers, office actions and such other documents as the
Management Committee shall reasonably require to monitor the activities in
the Territory. If a Collaborator elects not to continue the prosecution of
any application, reissue, reexamination, renewal or extension or to pay any
maintenance fee related to any such intellectual property right, it shall
notify the Management Committee of such decision at least thirty (30) days in
advance of the due date for such action or payment, and the other
Collaborator shall have the right, but not the obligation, to assume
responsibility therefor. Cephalon shall be responsible for coordinating its
activities with CCP and Chiron shall be responsible for coordinating its
activities with CIBA.
(b) COOPERATION. Each Collaborator shall cooperate with the other
Collaborator to facilitate the activities under paragraph (a) above,
including, without limitation, executing all lawful papers and instruments
and making all rightful oaths and declarations as may be necessary in the
preparation and prosecution of the patent applications, issued patents,
Trademarks and other rights included in the JV Technology or in the transfer
of any prosecution obligations under Section 9.1(a).
(c) ALLOWABLE EXPENSES. The Costs incurred by a Collaborator under this
Section 9.1 shall be an Allowable Expense to the extent approved by the
Management Committee as attributable to the Products in the Major Markets.
The Costs incurred by a Collaborator that are attributable to the Products in
the Royalty Territory shall be borne by the Collaborator.
SECTION 9.2 DEFENSE OF INFRINGEMENT CLAIMS.
(a) NOTICE. If a claim is asserted against Chiron, Cephalon or the JV
by a third party alleging infringement of the third party's intellectual
property rights resulting from the development, manufacture, use or sale of a
Product in the
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Territory, it shall promptly notify the other parties of such claim.
(b) DEFENSE OF CLAIM. The Collaborator against whom the claim has been
made shall control the defense of a claim attributable to the Products in the
Major Markets. Chiron shall be obligated to defend Cephalon and to control
the defense of a claim asserted in the Royalty Territory.
(c) COSTS AND JUDGMENTS IN THE MAJOR MARKETS. The reasonable Costs
(including any judgments or monetary damages awarded in an action) incurred
by a Collaborator in defending an infringement claim shall be an Allowable
Expense to the extent approved by the Management Committee as attributable to
the Products in the Major Markets.
(d) COSTS AND JUDGMENTS IN THE ROYALTY TERRITORY. Chiron shall pay its
out-of-pocket costs (including attorneys' fees) of defending a claim
attributable to the Products in the Royalty Territory, except that Chiron
may apply 100% of its reasonable out-of-pocket costs actually incurred
(including reasonable attorneys' fees) as a credit against any royalty
payments payable to the JV under Section 8.1 hereof. If any damages
(excluding punitive or exemplary damages) awarded against Chiron in a
judgment or order related to such claim are stated to be compensation to the
plaintiff for lost sales, 50% of such amount, to the extent not covered by
insurance, may be offset against the royalties payable under Section 8.1. If
Chiron licenses intellectual property rights to settle such claim in a
settlement that has been approved by Cephalon, Chiron may reduce the
royalties payable under Section 8.1 by 50% of the royalty payable to the
third party.
SECTION 9.3 PROSECUTION OF THIRD PARTY INFRINGEMENTS.
(a) NOTICE. Cephalon and Chiron shall promptly give written notice to
the other party and to the Management Committee of any infringement or
possible infringement of any of the JV Technology by a third party in the
Territory.
(b) CONTROL OF PROSECUTION IN THE MAJOR MARKETS. The Collaborator
owning the infringed technology right may, at its discretion, take such steps
as it deems necessary or desirable to prosecute any such infringement
attributable to Products in the Major Markets. If the Collaborator owning the
technology right does not bring suit or take other appropriate action within
120 days after receiving notice of such claim, the JV (or the Collaborator,
if the JV so elects) shall have the right, but not the obligation, to bring
suit or take other appropriate action with respect to the infringed right.
If the right consists of a joint invention or other JV Technology not owned
solely by a
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Collaborator, the Management Committee shall determine the appropriate
procedures for handling the alleged infringement.
(c) COSTS AND RECOVERIES IN THE MAJOR MARKETS. All monetary
damages awarded in any action against a third party under paragraph (b) that
are attributable to a Product within the Major Markets shall be treated as Net
Sales of the Collaboration in the calculation of Operating Profits. The JV
may retain 100% of any recovery in any proceeding brought by it, except that
any recovery explicitly attributable to a subject matter other than the
Products shall be remitted to the Collaborator who owns the technology right
at issue.
(d) CONTROL OF PROSECUTION IN THE ROYALTY TERRITORY. The JV,
through the Management Committee, shall have the right, but not the
obligation, to control the prosecution of an infringement claim attributable
to the Products in the Royalty Territory. If within forty-five (45) days after
receiving notice of such claim, the JV informs Chiron that it declines to
prosecute any such claim, Chiron shall have the right, but not the
obligation, to bring the claim.
(e) COSTS AND RECOVERIES IN THE ROYALTY TERRITORY. The
prosecuting party shall pay its out-of-pocket costs (including attorneys'
fees) of prosecuting the claim and shall be entitled to retain any award in
such action, except that if Chiron prosecutes the claim, it shall pay the JV
a royalty under Section 8.1 as to any portion of an award it receives that is
stated to be compensation for lost sales (after deducting a proportionate share
of Chiron's legal costs and expenses attributable to the award).
SECTION 9.4 JOINDER. Any party prosecuting or defending a claim under
this Article 9 shall have the right to join the other party in such
proceeding, only if it is necessary to use the other party's name to prosecute
or defend such action; however, the prosecuting party shall indemnify the
joined party against any liabilities asserted against the joined party solely
by virtue of being named in the prosecution and independent of any conduct by
the joined party.
SECTION 9.5 SETTLEMENT OF CLAIMS. Neither Collaborator may settle a
claim described in this Article 9 without the consent of the other
Collaborator, if such settlement would impose any monetary obligation on the
JV or the other Collaborator or require the JV or the other Collaborator to
submit to an injunction or otherwise limit the JV's or the other
Collaborator's rights under this Agreement.
SECTION 9.6 COOPERATION. In conducting the defense or prosecution of
any claim described in this Article 9, Cephalon and Chiron shall consult with
and keep the Management Committee
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informed of the status of the action. Upon reasonable request, the JV and the
Collaborators shall assist the person or persons controlling the defense or
prosecution of an infringement claim, the Costs of which shall be an
Allowable Expense to the extent attributable to the Products in the Major
Markets. In addition, any Collaborator or the JV may protect its interests in
such matter by participating in the proceeding, through attorneys of its
choice, the Costs of which shall not be an Allowable Expense.
SECTION 9.7 TRADEMARK MATTERS.
(a) TRADEMARKS IN MAJOR MARKETS. Subject to Section 4.6, the
Marketing Committee shall approve the Trademarks to be used for each Product
in the Major Markets.
(b) TRADEMARKS IN ROYALTY TERRITORY. Chiron's selection of
Trademarks for Products in the Royalty Territory is subject to Section 7.2
hereof. Chiron agrees that any rights arising to it from the use of the
Trademarks in the Royalty Territory and any goodwill related thereto shall
inure to the benefit of the JV to the extent it is the same or substantially
similar to a Trademark used in the Major Markets for the corresponding
Product.
(c) TRADEMARK PROTECTIONS. Subject to Section 4.6, the Marketing
Committee shall establish procedures and restrictions on use of the
Trademarks for Products in the Territory to be observed by the JV and the
Collaborators to ensure maintenance of the Trademarks in accordance with good
trademark practice.
(d) OWNERSHIP. Subject to Section 4.6, all Trademarks for Products
in the Territory created after the Effective Date shall be deemed Joint
Technology and may be used by a Collaborator with a product containing the
corresponding Compound outside the Field or outside the Territory, subject
to the rights of Kyowa Hakko under the applicable Cephalon Agreement.
(e) NO CONTEST. To the extent permitted by applicable law,
neither Collaborator shall, during the term of this Agreement, contest the
other Collaborator's ownership of the Trademarks licensed to the JV under
this Agreement or take any action adverse to the ownership of such Trademarks
by the other Collaborator or its successors or assigns.
(f) INSPECTION RIGHTS. The JV and each Collaborator shall have
the right, upon reasonable notice and during normal business hours, to
inspect the relevant facilities of the other Collaborator to ensure
compliance by the other Collaborator with this Section 9.7. Any such
inspection shall be subject to the confidentiality obligations of the
inspecting party under Article 12 hereof.
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ARTICLE 10 - PAYMENTS AND RECORDS
SECTION 10.1 PAYMENTS.
(a) PLACE OF PAYMENT. All payments to a Collaborator or the JV
under this Agreement shall be made by wire transfer in immediately available
funds in legal currency of the United States to the account designated in
writing by each Collaborator or the JV, as applicable, from time to time.
(b) CURRENCY CONVERSION. Any amount received in a currency other
than U.S. dollars shall be converted into U.S. dollars using the average
for the month in which the amount was received of the composite conversion
rate for each business day in such month of the non-U.S. currency into U.S.
dollars as reported in the BLOOMBERG FINANCIAL MARKETS, COMMODITIES & NEWS (or
any mutually acceptable successor thereto).
(c) LATE PAYMENT. Payments hereunder shall be deemed paid as of
the day on which they are received at the account designated pursuant to
paragraph (a) above. Any payment which is not paid within fourteen (14) days
after the date when due shall accrue interest thereon from such date until
the date of its payment in full at one (1) percentage point over the per
annum interest rate published as the Prime Rate as reported in the BLOOMBERG
FINANCIAL MARKETS, COMMODITIES & NEWS (or any mutually acceptable successor
thereto), but in no event shall such rate exceed the maximum rate permitted
by applicable law.
SECTION 10.2 BOOKS AND RECORDS; ACCOUNTING.
(a) MAINTENANCE OF RECORDS. The Collaborators and Chiron, on
behalf of the JV shall maintain complete and accurate books of account in
accordance with generally accepted accounting principles and the principles
specified in Schedule V hereto, consistently applied, in sufficient detail to
allow the calculation of Allowable Expenses and Operating Profits under
Article 6 and the calculation of royalties under Article 8 to be verified.
The Collaborators and the JV shall retain such records for so long as the
Management Committee shall specify, and, in the event of a disagreement as to
the necessity of retention, or upon the dissolution of the JV, either
Collaborator may take possession of such records or copies thereof.
(b) ACCESS AND INSPECTION. The Collaborators shall have
reasonable access to the books and records of the JV while in the possession
of the JV, and each Collaborator, at its own expense (which shall not be an
Allowable Expense) and upon reasonable prior notice, shall have the right to
have such books and records examined and audited by outside auditors. Each
Collaborator shall make its relevant books and records available
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for inspection and audit by the independent accountant of the JV or of the
other Collaborator, at the expense of the inspecting party (which shall not
be an Allowable Expense), not more than once each calendar year, upon
reasonable prior notice and during normal business hours. Any inspection of
the JV's or a Collaborator's books and records shall be conducted subject to
the confidentiality obligations under Article 12 hereof.
ARTICLE 11 - CERTAIN REGULATORY MATTERS
SECTION 11.1 GOVERNMENTAL INSPECTIONS AND INQUIRIES
(a) Each Collaborator shall advise the Management Committee of any
governmental visits to, or written or oral inquiries about, any facilities or
procedures for the manufacture, storage or handling of a Product in the
Territory, promptly (but in no event later than fifteen (15) calendar days)
after such visit or inquiry. Each Collaborator shall furnish to the Management
Committee, within fifteen (15) days after receipt, a copy of any report or
correspondence issued by the governmental authority in connection with such
visit or inquiry, purged only of confidential or proprietary
information that is unrelated to the Products or the activities under this
Agreement.
(b) Each Collaborator also shall advise the other Collaborator of
any inquiry, notice or investigation initiated or made by any governmental
authority relating to the promotion, advertisement, marketing or sale of the
Products or any of its other activities under this Agreement. The
Collaborators shall cooperate and consult with each other in responding to
the governmental authority.
SECTION 11.2 ADVERSE REACTIONS. The Development Committee shall
establish procedures by which each Collaborator will receive notice from the
other Collaborator and the JV, and will report to the JV and the other
Collaborator, any adverse drug reactions related to a Product (including
events related to products containing the same active ingredient as
Products outside the Field and/or outside the Territory). The procedures shall
be established by the Development Committee promptly after the Effective Date.
Until such procedures ard approved, each Collaborator shall use its customary
procedures in complying with the reporting requirements of applicable law and
shall promptly furnish a written copy of any such report to the other
Collaborator. Prior to the establishment of the JV, Cephalon shall serve as
the reporting party for adverse events related to the Products.
SECTION 11.3 RECALLS AND MARKET WITHDRAWALS. If at any time (i) any
governmental or regulatory authority issues a request, directive, or order
that a Product be recalled or
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withdrawn, or (ii) a court of competent jurisdiction orders such a recall or
withdrawal in a Major Market, or (iii) the Management Committee determines
that a Product should be recalled in a Major Market, the parties shall take
all appropriate corrective actions to effect the recall or withdrawal. If a
dispute about the necessity of a recall can not be resolved in accordance
with Section 15.1 hereof, either Collaborator may order a recall (without
proceeding to arbitration under Section 15.2) if in its reasonable judgment
it is required to do so by law. The cost and expenses of notification and
destruction or return of the recalled or withdrawn Product in a Major Market
shall be an Allowable Expense.
ARTICLE 12 - CONFIDENTIALITY, ETC.
SECTION 12.1 CONFIDENTIALITY.
(a) INFORMATION RECEIVED FROM OTHER PARTY. Each Collaborator (a
"Recipient") will keep in confidence any confidential or proprietary
information (the "Confidential Information") received from the other
Collaborator (the "Furnishing Party"), whether furnished before or after
the Effective Date. The foregoing obligations shall not apply to, and the
definition of "Confidential Information" does not include:
(i) information that at the time of the use or disclosure by
the Recipient was already in the public domain other than through the
fault of the Recipient or its employees, licensees, agents or
subcontractors, in violation hereof;
(ii) information that was rightfully known by the Recipient (as
shown by its written records) prior to the date of disclosure by the
Furnishing Party to the Recipient in connection with this Agreement; or
(iii) information that was received by the Recipient on an
unrestricted basis from a source under no duty of confidentiality to the
Furnishing Party; or
(iv) information that Recipient believes in good faith is
required to be disclosed to comply with any applicable law, regulation or
order of a government authority of court of competent jurisdiction
(including any securities laws applicable to a Collaborator), in which
event the disclosing party shall use all reasonable efforts to advise the
other Collaborator in advance of the need for such disclosure; or
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(v) information that is independently developed by the
Recipient without reliance on the Confidential Information.
Notwithstanding the foregoing, it is understood that each Collaborator may
disclose Confidential Information to its employees, licensees, consultants,
contractors and agents if such persons are subject in writing to obligations
of confidentiality with respect to such information to the same extent the
Collaborator is so obligated hereunder.
INFORMATION DEVELOPED FOR COLLABORATION. Information in the Field
that is developed by a Collaborator in the conduct of a specific objective or
activity under a Development Plan and which would be proprietary to the
Collaborator shall be treated as Confidential Information by both
Collaborators. Any disclosure or publication of such information shall be
subject to the approval of the Management Committee (which approval shall not
be unreasonably withheld). A Collaborator shall not be obligated to treat any
other information developed by it (whether before or during the Collaboration)
as Confidential Information.
SECTION 12.2 INJUNCTIVE RELIEF. Each Collaborator acknowledges that damages
for breach of the covenants contained in Section 12.1 would be an inadequate
remedy, and that in the event of any such breach, the other Collaborator
shall be entitled to seek injunctive or other equitable relief in addition to
any and all remedies available at law or in equity, including the recovery of
damages and reasonable attorneys' fees.
SECTION 12.3 PUBLICITY. The Collaborators shall consult with each other
and coordinate all press releases and similar public announcements by the
Collaborator concerning the existence and terms of this Agreement and the
activities and progress of the Collaboration. The Collaborators shall not
disclose the confidential terms of such agreements to any third parties
without the prior written consent of the other party or parties thereto. This
Section 12.3 shall not apply to the extent that any disclosure is (a) of
information in the public domain other than through the fault of the
Collaborator or its employees, licensees, agents or subcontractors, in
violation hereof, (b) believed in good faith to be required to comply with
any applicable law, regulation or order of a government authority of court of
competent jurisdiction (including any securities laws applicable to a
Collaborator), in which event the disclosing party shall use all reasonable
efforts to advise the other Collaborator in advance of the need for such
disclosure, or (c) is made, under confidentiality, to a recipient who is a
licensor, licensee or potential licensor or licensee and to whom such
disclosure is reasonably required to define the scope of rights
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which could be granted to the recipient without violating the terms of this
Agreement.
ARTICLE 13 - CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 13.1 CORPORATE STATUS AND AUTHORITY. Each Collaborator
represents to the other that as of the date hereof:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) it has the corporate power and authority to execute, deliver and
perform this Agreement;
(c) the execution, delivery and performance of this Agreement has been
duly authorized by all necessary corporate action on the part of each
Collaborator and the Agreement is binding and enforceable in accordance
with its terms;
(d) the execution, delivery and performance of this Agreement by such
party (i) does not conflict with, or constitute a breach or default under its
Certificate of Incorporation, bylaws, or any law, order, judgment or
governmental rule or regulation applicable to it, and (ii) does not conflict
with, or constitute a breach or default under or require any consent or
approval not obtained under, any provision of any material agreement,
contract, commitment or instrument to which it is a party;
(e) to its knowledge, it owns all patents, know-how and other
intellectual property rights included as of the Effective Date in its license
to the other Collaborator under Section 5.1 hereof, except for rights
licensed from or granted to third parties under the agreements listed on
SCHEDULE I hereof;
(f) to its knowledge, it is not required to obtain the consent or
approval of any third party to perform its obligations under this Agreement,
or to license or transfer such rights to the other Collaborator or to the JV
as contemplated under this Agreement; and
(g) in the case of Chiron, to its knowledge and except as disclosed
to Cephalon in writing, it owns all patents, knowhow and other intellectual
property rights required for use in the manufacture of the Products, except
for the rights specified on SCHEDULE I hereto, which are licensed by
Chiron from the third parties specified therein, and it has not received any
notice from a third party indicating that the manufacture of Products by
Chiron would infringe any intellectual property rights of any third party.
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SECTION 13.2 NO INCONSISTENT AGREEMENTS. Neither Collaborator shall
enter into any oral or written agreement after the date hereof that would be
inconsistent with its obligations under this Agreement or deprive the other
Collaborator of the benefits of the Collaboration in any substantial respect.
ARTICLE 14 -- DISCLAIMER, INDEMNIFICATION AND INSURANCE
SECTION 14.1 NO WARRANTY. EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 8
HEREOF, NEITHER COLLABORATOR MAKES ANY EXPRESS OR IMPLIED WARRANTIES,
STATUTORY OR OTHERWISE, CONCERNING THE PRODUCTS OR THE TECHNOLOGY LICENSED BY
IT TO THE OTHER COLLABORATOR OR TO THE JV, NOR DOES THE JV MAKES ANY EXPRESS
OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE, CONCERNING THE JV TECHNOLOGY,
THE PRODUCTS OR ANY INFORMATION LICENSED TO A COLLABORATOR UNDER THIS
AGREEMENT. WITHOUT LIMITING THE FOREGOING, NEITHER COLLABORATOR NOR THE JV
MAKES ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE, QUALITY OR USEFULNESS OF THE JV TECHNOLOGY
OR THE PRODUCTS.
SECTION 14.2 DEFENSE OF CLAIMS IN TERRITORY. Except as provided in
Article 9 hereof, each Collaborator and the JV shall be responsible for
defending itself against any liabilities, losses, costs, damages and expenses
(including reasonable attorneys' fees and costs) (collectively,
"Liabilities") resulting from a claim asserted by a third party arising out
of the manufacture, marketing, sale or use of a Product in the Territory,
including, without limitation, any claim in the nature of product liability
(whether under theories of strict liability, negligence, breach of warranty
or otherwise). If any such claim is asserted against both Collaborators
and/or the JV, the Management Committee shall control the defense of the
claim.
SECTION 14.3 COSTS AND EXPENSES.
(a) MAJOR MARKETS. Except as provided in Article 9 hereof, the
Costs (including any judgments or monetary damages awarded in an action)
incurred by the Collaborators or the JV in defending against any claim
described in Section 14.2 shall be an Allowable Expense to the extent
attributable to the Products in the Major Markets, unless the claim is caused
by: (i) the breach by the Collaborator or the JV of any covenant,
representation or warranty contained in this Agreement, or (ii) any act or
omission constituting gross negligence or willful misconduct by the
Collaborator or the JV in the development, manufacturing, labelling,
promotion, marketing or sale of a Product or any other activity conducted by
it under this Agreement (each, an "Excluded Liability").
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(b) ROYALTY TERRITORY. Except as provided in Article 9 hereof,
the Costs (including any judgments or monetary damages awarded in an action)
incurred by the Collaborators or the JV in defending against any claim
described in Section 14.2 shall be borne by the defending party (and shall
not be an Allowable Expense) to the extent attributable to the Products in
the Royalty Territory, unless the claim constitutes an Excluded Liability of
the other Collaborator, in which case the defending party may seek indemnity
from the other Collaborator under Section 14.4 hereof.
SECTION 14.4 INDEMNITY FOR EXCLUDED LIABILITIES. Each Collaborator
and the JV (as such, an "Indemnifying Party") shall indemnify, defend and
hold harmless the other Collaborator and the JV and its and their employees,
officers, directors and agents (as such, an "Indemnified Party") from and
against any Liabilities which the Indemnified Party may incur, suffer or be
required to pay resulting from or arising in connection with (i) any Excluded
Liability of the Indemnifying Party, (ii) any breach by the Indemnifying
Party of any agreement listed on SCHEDULE I to which it or an Affiliate is a
party, or (iii) the successful enforcement by an Indemnified Party of any of
the foregoing.
SECTION 14.5 PROCEDURES FOR INDEMNIFICATION. The obligations of the
Indemnifying Party under this Article 14 are conditioned upon the delivery of
written notice to the Indemnifying Party of any potential Liability, promptly
after the Indemnified Party becomes aware of such potential Liability. The
Indemnifying Party shall have the right to assume the defense of any suit or
claim related to the Liability if it has assumed responsibility for the
Liability in writing. If the Indemnifying Party defends the suit or claim,
the Indemnified Party may participate in (but not control) the defense
thereof, at its sole cost and expense (which shall not be an Allowable
Expense).
SECTION 14.6 SETTLEMENTS, ETC. Neither Collaborator may settle a
claim or action under this Article 14 without the consent of the other
Collaborator, if such settlement would impose any monetary obligation on the
JV or the other Collaborator or require the JV or the other Collaborator to
submit to an injunction or otherwise limit the other party's rights under
this Agreement.
SECTION 14.7 LIMITATION OF LIABILITY. With respect to any claim by
one party against the other arising out of the performance or failure of
performance of the other party under this Agreement, the liability of one
party to the other party for such breach shall be limited under this
Agreement or otherwise at law or equity to direct damages only; in no event
shall a party be liable to the other party for indirect, incidental or
consequential damages including, without limitation, lost profits.
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SECTION 14.8 INSURANCE. The Management Committee shall determine from time
to time the types and amount of insurance coverage, if any, to be maintained
by the JV and by each Collaborator to insure against the activities of the
Collaborators and the Collaboration. The Costs incurred by a Collaborator in
maintaining any insurance policy at the direction of the Management Committee
shall be an Allowable Expense to the extent authorized by the Management
Committee as attributable to its activities with respect to Products in the
Major Markets and otherwise shall be the responsibility of the Collaborator.
ARTICLE 15 - DISPUTE RESOLUTION
SECTION 15.1 DISPUTE RESOLUTION. If any dispute arises under this
Agreement which can not be resolved expeditiously by the Management Committee
after due consideration, the matter shall be submitted to the Chairman of
Chiron and the Chief Executive Officer of Cephalon for resolution. If the two
executives can not resolve the dispute to their mutual satisfaction within
thirty (30) days, the dispute shall be referred to arbitration under Section
15.2 below.
SECTION 15.2 ARBITRATION.
(a) Except as provided in subsection (d) hereof, all disputes arising
between Cephalon and Chiron under this Agreement that have not been resolved
pursuant to Section 15.1 shall be settled by arbitration conducted in the
English language in accordance with the procedures of the Commercial Rules of
the American Arbitration Association, before a panel of three arbitrators,
one of whom is selected by Cephalon, one of whom is selected by Chiron, and
one of whom is selected by Cephalon and Chiron (or by the other two
arbitrators, if the parties cannot agree). The parties shall request an
expedited hearing for any dispute related to a nonpayment hereunder, and
shall otherwise cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable. Any arbitration
proceeding instituted by a Collaborator shall be brought in the principal
place of business of the defending party.
(b) Any award rendered by the arbitrators shall be binding upon the
parties hereto and shall be final, subject to review by a court of competent
jurisdiction under the statutory standard of review applicable to
arbitrations. Judgment upon the award may be entered in any court of record
of competent jurisdiction.
(c) Each party shall pay its own expenses of arbitration and the
expenses of the arbitrators shall be equally shared unless otherwise ordered
by the arbitrators.
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(d) Notwithstanding anything contained in this Section 15.2, each party
shall have the right to institute judicial proceedings against the other
party or anyone acting by, through or under such other party in order to (i)
enforce the instituting party's rights hereunder through specific
performance, injunction or similar equitable relief, or (ii) enforce its
rights under Article 12 hereof.
ARTICLE 16 - TERM AND TERMINATION
SECTION 16.1 TERM. This Agreement shall commence as of the Effective Date
and shall continue until the last sale of a Product in the Territory pursuant
to Article 4 or Article 7, unless terminated earlier in accordance with this
Article 16.
SECTION 16.2 TERMINATION OF AGREEMENT IN FULL.
(a) TERMINATION FOR COMMERCIAL FAILURE. This Agreement may be
terminated in full by either Collaborator, upon 180 calendar days written
notice to the other Collaborator, if in the good faith conclusion of the
terminating Collaborator, there is no reasonable, objective basis for further
development of any Product within the Field. The terminated Collaborator
shall, at its election, be a "Continuing Licensee" for purposes of Section
16.5(b) hereof.
(b) TERMINATION UPON BREACH. This Agreement may be terminated in full
by either Collaborator upon material breach by the other Collaborator of any
covenant, representation or warranty of this Agreement such that the
non-breaching party is denied in a substantial respect the economic benefit
of this Agreement and such breach is not substantially cured within sixty
(60) calendar days after the non-breaching Collaborator gives the breaching
Collaborator written notice of such breach. The terminating Collaborator
shall, at its election, be a "Continuing Licensee" for purposes of Section
16.5(b) hereof.
(c) TERMINATION BY MUTUAL AGREEMENT. This Agreement may be terminated
in whole or in part at any time by mutual written agreement of the
Collaborators.
SECTION 16.3 ACTIONS UPON CHANGE OF CONTROL. If either Collaborator
experiences one or more of the following events (a "Change of Control"):
(i) any person or group (other than a Collaborator or a group
including a Collaborator) becomes after the date hereof (whether by
tender or exchange offer or otherwise) the beneficial owner, directly or
indirectly, of securities of the Collaborator representing 50% or more
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of the combined voting power of such Collaborator's then outstanding
voting securities;
(ii) the membership of the Collaborator's Board of Directors
changes as a result of one or more contested elections within a two
year period such that individuals who were members of such Board prior
to any such contested election no longer make up a majority of such
Board; or
(iii) stockholders of the Collaborator approve a merger, plan of
consolidation, the sale or disposition of all or substantially all of
such Collaborator's assets, or a plan of partial or complete liquidation
of such Collaborator;
then the Collaborator experiencing the Change of Control shall promptly
furnish the other Collaborator with written notice describing such event
(reasonably in advance of such event, if possible, but in no event later than
ten (10) days after such event).
SECTION 16.4 PARTIAL TERMINATION IN ROYALTY TERRITORY. Chiron may
terminate its rights in any country in the Royalty Territory, in whole or as
to any Product, without cause, upon 180 days written notice to the JV.
SECTION 16.5 RIGHTS AND OBLIGATIONS ON TERMINATION.
(a) BALANCING. Upon termination of this Agreement pursuant to Section
16.2, the Collaborators shall balance any remaining deficiency in the equal
funding of Allowable Expenses between the parties in a transaction (such as a
purchase of assets) that is mutually acceptable to the parties and, at the
option of the Collaborator balancing the deficiency, does not result in a
current charge to the earnings of such Collaborator.
(b) RIGHTS OF A CONTINUING LICENSEE.
(I) SURVIVING LICENSES. A Collaborator who is a Continuing
Licensee may elect to have the applicable licenses granted to it or to
the JV under Article 5 convert into an exclusive license to the
Continuing Licensee, which shall survive termination of this Agreement
until the Continuing Licensee ceases to develop or commercialize
Products. The other Collaborator shall transfer to the Continuing
Licensee, upon request, all Confidential Information necessary or
useful for the manufacture, use or sale of the applicable Product in
its possession. In addition, the Continuing Licensee may elect to cause
the other Collaborator and the JV to transfer all Regulatory Approvals,
Pricing Approvals, marketing approvals, customer lists, contracts,
information or any other right that is necessary or useful for the
development, manufacture, use,
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marketing or sale of the applicable Product or Products. The other
Collaborator shall take such steps as are reasonably required to transfer all
such approvals, contracts, information and rights to enable the Continuing
Licensee to assume the business of developing, marketing and selling the
applicable Product or Products.
(ii) SUPPLY OF PRODUCTS. If the Continuing Licensee is not supplying
any of the applicable Product or Products under this Agreement, it may either
require the other party to continue to supply the applicable Product or
Products, upon the terms and for the period described below, or cause the
other party to transfer the required technology to the Continuing Licensee.
If a Continuing Licensee elects to require the other party to continue
to supply Products, it shall pay the supplying party, on a quarterly basis,
an amount equal to [CONFIDENTIAL TREATMENT REQUESTED] for all Products
continued to be supplied hereunder. The supplying party shall only be
obligated to supply Products for a reasonable transition period, which period
shall not exceed [CONFIDENTIAL TREATMENT REQUESTED] from the date that the
Collaborator elects to become a Continuing Licensee. The Continuing Licensee
shall use all commercially reasonable efforts to identify a replacement
manufacturer or establish a manufacturing facility for the Products in a
timely manner. The supplying party shall take such steps as are reasonably
required to enable the Continuing Licensee to assume the business of producing
the Products. If for any reason the supplying party is not legally permitted
to transfer the necessary technology or rights to the Continuing Licensee for
these purposes, the supplying party will continue to provide the applicable
Product or Products under this Agreement or to otherwise make available to the
Continuing Licensee the benefits of this Section 16.4, pursuant to
commercially reasonable terms to be mutually agreed upon by the parties. Any
amounts owed by the Continuing Licensee for Product supply under this
Agreement shall be set off against the amount, if any, of unbalanced
Allowable Expenses of the Continuing Licensee existing as of the effective
termination date of this Agreement.
If a Continuing Licensee elects to cause a transfer of the required
technology to manufacture Products, the transferring party shall take such
steps as are reasonably required to enable the Continuing Licensee to
manufacture (or have manufactured) the Products, including, without
limitation, by providing to the Continuing Licensee: (x) all manufacturing
information and descriptions of the applicable technology and processes in
sufficient detail to permit the manufacture of the Products in commercial
quantities in an efficient manner; (y) samples of all organisms or
other biological material used in producing such Products; and (z) training
of personnel as may be
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necessary to permit the manufacture of the Products. The Continuing Licensee
shall pay the transferring party a royalty on sales of Products at a rate to
be negotiated by the parties in good faith at the time of such license, but
shall not be more than [CONFIDENTIAL TREATMENT REQUESTED] of the royalties
payable by Chiron under Article 8 hereof.
(c) NON-COMPETE. A Collaborator that is not a Continuing Licensee shall
refrain from selling Products in the Field in the Territory and shall
refrain from participating, directly or indirectly, in any business,
partnership, collaboration, license arrangement or other enterprise engaged
in the business of the development, manufacture, marketing, use, distribution
or sale of Products in the Field and in the Territory for a period of five
(5) years after the termination date.
(d) ROYALTY TERRITORY.
(i) Cephalon shall have the right to assume Chiron's rights and
obligations as to any country or Product in the Royalty Territory upon
any termination of such country or Product under Section 16.4. However,
no such assumption by Cephalon shall operate as waiver of or otherwise
extinguish Chiron's obligations for liabilities accrued prior to the
termination date. Chiron shall cooperate with Cephalon to allow Cephalon
to conduct its business under this Agreement in a timely manner, including
taking such steps as are reasonably required to allow Cephalon to obtain
supplies of Products for purposes of this Agreement.
(ii) Upon termination of a country or Product in the Royalty Territory
by Chiron pursuant to Section 16.4, Chiron shall promptly deliver to the
JV or Cephalon, as applicable, all promotional materials and other data,
information, test results, marketing information, customer lists and
records, distributor lists and records, and any other information under
Chiron's control that is related to the manufacture, marketing or sale of
the applicable Product or Products in the applicable country or countries
within the Royalty Territory. Chiron also shall promptly transfer any
Regulatory Approvals and Pricing Approvals for the applicable Product or
Products in the applicable country or countries in the Royalty Territory
to the JV or Cephalon, as applicable, to the extent permitted by law.
(iii) Chiron may sell remaining inventory and finished goods for a
Product or Products as to which Chiron has terminated pursuant to Section
16.4 for a period not to exceed six (6) months, subject to the royalty
obligations and other provisions of this Agreement. Any inventory of
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Product remaining at the end of such period shall be transferred
pursuant to the instructions of the JV or Cephalon, the costs of which
shall be borne by the JV or Cephalon, as applicable.
SECTION 16.6 TERMINATION UPON CCP TRANSFER. If for any reason Cephalon,
after consultation with Chiron, either elects not to exercise its right to
purchase the limited partnership interests of CCP under the Purchase
Agreement included in the Cephalon Agreements, or Cephalon's rights under
this Agreement are transferred to CCP for any other reason (including breach
under the terms of the applicable Cephalon Agreements), Cephalon may transfer
its rights under this Agreement to CCP, unless either CCP or Chiron elects to
terminate this Agreement, upon 90 days written notice of termination to the
other. In the event of such termination, any license to a Continuing Licensee
under Section 16.5 hereof also shall terminate, the Chiron Technology shall
revert to Chiron and the Cephalon Technology shall revert to CCP, subject to
the perpetual licenses under Section 5.1 hereof.
SECTION 16.7 EFFECTIVE DATE OF TERMINATION. Unless otherwise provided
herein, a termination notice pursuant to this Article 16 shall be effective
on the date of delivery of written notice of termination to the other party
hereto.
SECTION 16.8 SURVIVAL. Neither Collaborator nor the JV shall be relieved
of its obligations to pay any sums of money due or payable or accrued under
this Agreement as of the date of such termination. All accounts between the
Collaborators and the JV shall be settled in full within ninety (90) days
following the termination of this Agreement under Section 16.2. Article 12,
Section 16.5 and this Section 16.7 shall survive the termination of this
Agreement. In addition, any provision required to interpret and enforce the
parties rights and obligations under this Agreement also shall survive to the
extent required for the full observation and performance of this Agreement in
accordance with its terms.
SECTION 16.9 REMEDIES NOT EXCLUSIVE. Termination by either Collaborator
pursuant to this Article 16 shall not prejudice any other remedy that such
party might have in law or equity with the exception, however, of claiming
compensation for loss or damages resulting from such termination.
ARTICLE 17 - MISCELLANEOUS
SECTION 17.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire understanding of the Collaborators with respect to the subject matter
hereof and supersedes all previous verbal and written agreements,
representations and warranties.
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This Agreement may be released, waived or modified only by written agreement
signed by the party against whom enforcement of any release, waiver,
modification, or other change is sought.
SECTION 17.2 REFERENCES TO CIBA. All references to CIBA in this
Agreement shall be effective for so long as CIBA has the right of first
refusal to sell or promote products containing IGF-1 under the CIBA
Agreement. If at any time CIBA ceases to have such right, all references to
CIBA's rights and obligations under this Agreement shall be of no further
force and effect.
SECTION 17.3 FORCE MAJEURE. Failure of any party to perform its
obligations under this Agreement (except the obligation to make payments)
shall not subject such party to any liability or place them in breach of any
term or condition of this Agreement to the other party if such failure is
caused by any cause beyond the reasonable control of such nonperforming
party, including without limitation acts of God, fire, explosion, flood,
drought, war, riot, sabotage, embargo, strikes or other labor trouble,
failure in whole or in part of suppliers to deliver on schedule materials,
equipment or machinery, interruption of or delay in transportation, a
national health emergency or compliance with any order or regulation of any
government entity acting with color of right.
SECTION 17.4 NO INTERFERENCE WITH EXISTING BUSINESSES. Each of Chiron
and Cephalon acknowledges that the other party is engaged in the business of
developing, manufacturing, marketing and selling products, including Products
outside the Field and products other than Products within the Field. Nothing
in this Agreement shall prevent either Collaborator from continuing to carry
on its business or to enter into agreements with third parties except as
expressly provided in Sections 4.6, 5.5 and 16.5(c) hereof.
SECTION 17.5 COMPLIANCE WITH LAW. Each Collaborator shall comply with
all laws, rules and regulations which are material to the conduct of its
activities under this Agreement.
SECTION 17.6 WAIVER. The failure of a party to enforce any breach or
provision of this Agreement shall not constitute a continuing waiver of such
breach or provision and such party may at any time thereafter act upon or
enforce such breach or provision of this Agreement. Any waiver of breach
executed by either party shall affect only the specific breach and shall not
operate as a waiver of any subsequent or preceding breach.
SECTION 17.7 NO ASSIGNMENT. No Collaborator may sell, assign, pledge
or otherwise dispose of all or any portion of its interest in the
Collaboration or right thereto without the prior written consent of the other
Collaborator, except that no such consent is required for any transfer to an
Affiliate or to a
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successor to substantially all of the Collaborator's business. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon
the Collaborators and their respective permitted successors and assigns.
SECTION 17.8 SEVERABILITY. If any clause or provisions of this
Agreement is declared invalid or unenforceable by a court of competent
jurisdiction, such provision shall be severed and the remaining provisions of
the Agreement shall continue in full force and effect. The parties shall use
their best efforts to agree upon a valid and enforceable provision as a
substitute for the severed provision, taking into account the intent of this
Agreement.
SECTION 17.9 NOTICES. Any notice, request or other communication
required to be given pursuant to the provisions of this Agreement shall be in
writing and shall be deemed to be given when delivered in person or five days
after being deposited in the United States mail, postage prepaid, certified,
return receipt requested, or by overnight courier (return receipt requested),
to the parties addressed as follows:
(a) If to Chiron to:
Chiron Corporation
4560 Horton Street
Emeryville, California 94608
Attn: Office of the President
Tel: (510) 655-8730
FAX: (510) 654-5360
With a copy to:
Law Department
Chiron Corporation
Tel: (510) 655-8730
FAX: (510) 654-5360
(b) If to Cephalon, to
Cephalon, Inc.
145 Brandywine Parkway
West Chester, PA 19380
Attn: President
Tel: (215) 344-0200
FAX: (215) 344-7253
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With a copy to:
Barbara S. Schilberg
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19013
Tel: (215) 963-5000
FAX: (215) 963-5299
Either party may change its address or its FAX number by giving the other
party written notice, delivered in accordance with this Section.
SECTION 17.10 PRONOUNS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural, as
the context may require.
SECTION 17.11 FURTHER INSTRUMENTS. Each Collaborator shall execute
and deliver such further instruments and do such further reasonable acts and
things as reasonably may be required to carry out the intent and purpose of
this Agreement.
SECTION 17.12 GOVERNING LAW. The validity, performance, construction,
and effect of this Agreement will be governed by the laws of the State of
Delaware, without giving effect to conflict of law rules.
SECTION 17.13 COUNTERPARTS. This Agreement shall become binding when
any one or more counterparts hereof, individually or taken together, bears
the signature of each of the parties hereto. This Agreement may be executed
in any number of counterparts, each of which shall be an original as against
the party whose signature appears thereon, but all of which taken together
shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its duly authorized officer as of the date first above written.
CHIRON CORPORATION CEPHALON, INC.
By: /s/ William J. Rutter, Ph.D. By: /s/ Frank Baldino, Jr.
------------------------------- --------------------------------
Name: William J. Rutter, Ph.D. Name: Frank Baldino, Jr.
Title: Chairman Title: President and Chief
Executive Officer
<PAGE>
SCHEDULE I
THIRD PARTY AGREEMENTS
[CONFIDENTIAL TREATMENT REQUESTED]
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[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE II
FIELD EXCLUSION
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE III
SOD TECHNOLOGY
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE IV
THIRD PARTY ROYALTIES
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE V
DEVELOPMENT EXPENSES FOR TRANSITION PERIOD
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE VI
ALLOWABLE EXPENSES AND ACCOUNTING PRINCIPLES
To be prepared in accordance with Section 2.3(c).
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SCHEDULE VII
PREFERRED INDICATIONS OF CHIRON
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE VIII
CEPHALON NONFIELD INDICATIONS
[CONFIDENTIAL TREATMENT REQUESTED]
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Exhibit 10.85
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
[Letterhead]
January 13, 1995
VIA FEDERAL EXPRESS
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
Attention: William H. Green, Esq.
Re: COLLABORATION AGREEMENT
Gentlemen:
This letter is intended to confirm certain mutual understandings in
connection with the Agreement between Cephalon, Inc. and Chiron Corporation
dated January 7, 1994 (the "Agreement") related to the joint development and
commercialization of IGF-1 and other specified compounds. All capitalized
terms not otherwise defined herein are used as defined in the Agreement.
1. The 1994 budget of Allowable Expenses by Cephalon for the use of IGF-1
in the treatment of ALS has been approved by the Management Committee
in the form attached as EXHIBIT A to this letter.
2. The 1994 budget of [CONFIDENTIAL TREATMENT REQUESTED of Allowable
Expenses by Chiron for IGF-1 has been approved by the Management
Committee.
3. Section 6.1 of the Agreement is amended to read in its entirety as
follows:
"SECTION 6.1 SHARING OF OPERATING PROFITS AND LOSSES. The
Operating Profits and Operating Losses from the Major Markets and
the Royalty Territory shall be shared equally by Cephalon and
Chiron, except (i) for the special allocation described in
Section 6.2(a) hereof, and (ii) Cephalon shall receive from the JV
a royalty of [CONFIDENTIAL TREATMENT REQUESTED] in the Major Markets
in Europe (i.e., the EC and EFTA countries) of a Product containing
IGF-1 for use in treating ALS, before Operating Profits and
Operating Losses are calculated."
<PAGE>
Chiron Corporation
January 13, 1995
Page 2
4. Cephalon will be responsible for the Costs related to the IGF-1 program
that were incurred by Cephalon in 1994, as specified on EXHIBIT B
hereto, and for any other Costs related to the European ALS study that
are designated as non-Allowable Expenses in the 1995 budget to be
approved by the Management Committee (all of such Costs being referred
to as the ""Reimbursable Costs"). However, Cephalon shall be entitled
to make draws under the Line of Credit Note to fund one-half of the
Reimbursable Costs, not to exceed $10 million. The Line of Credit Note
is hereby amended to the extent required to permit such draws and is
further amended to extend the Maturity Date of the Note by one year, to
January 6, 2000.
5. Chiron shall have no right to receive any of the Operating Profits from
Net Sales in the Major Markets in Europe of a Product containing IGF-1
for use in treating ALS, unless it elects to repurchase its rights by
reimbursing Cephalon for the Reimbursable Costs, by written notice to
Cephalon delivered at any time before the earlier of (i) filing by
Cephalon of the first request for regulatory approval to market a
product containing IGF-1 in a Major Market, or (ii) the Maturity Date
of the Line of Credit Note. To repurchase such rights, Chiron shall
reimburse Cephalon for 50% of the Reimbursable Costs, plus interest
accrued at [CONFIDENTIAL TREATMENT REQUESTED], compounded annually from
the date the Reimbursable Cost was incurred. The reimbursement shall
be paid out of Chiron's share of Operating Profits in the Territory from
Net Sales of a Product containing IGF-1 for use in treating ALS. All of
Chiron's share of Operating Profits in the Territory will be subject to
the reimbursement, on a dollar-for-dollar basis, until the Reimbursable
Costs, plus accrued interest, have been paid in full. All such
reimbursements shall be applied first, to pay accrued interest and second,
to pay the principal of the Reimbursed Costs. Chiron may at any time
prepay the Reimbursable Costs, plus interest accrued to the date of
prepayment.
If Chiron elects to reimburse the Reimbursable Costs, Cephalon shall
repay the outstanding principal of the Line of Credit Note related to
the draws used to fund the Reimbursable Costs in an amount equal to, and
concurrently with, each payment by Chiron of Reimbursable Costs. If
Chiron gives written notice of its election to repurchase such rights,
the Maturity Date of the Line of Credit Note shall automatically be
extended to the extent required to permit the payment by Cephalon of
such principal of the Note concurrently with reimbursement by Chiron of
the Reimbursable Costs.
<PAGE>
Chiron Corporation
January 13, 1995
Page 3
If the foregoing accurately reflects your understanding as to these
matters, please indicate your agreement in the space provided below.
Very truly yours,
/s/ Bruce A. Peacock
Bruce A. Peacock
Executive Vice President &
Chief Operating Officer
Accepted and agreed to by:
CHIRON CORPORATION
By: /s/ William G. Green
------------------------------
cc: Frank Baldino, Jr., Ph.D.
Barbara S. Schilberg, Esq.
<PAGE>
EXHIBIT A
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
EXHIBIT B
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
Exhibit 10.85
May 23, 1995
VIA FAX
Chiron Corporation
4560 Horton Street
Emeryville, CA 94606
Attention: William Green, Esq.
Re: AMENDMENT TO AGREEMENT
Gentlemen:
This letter is to confirm our understanding as to certain matters under
the Agreement dated January 7, 1994 between Cephalon, Inc. and Chiron
Corporation, as amended (the "Agreement"). All terms not otherwise defined
herein are used as defined in the Agreement.
1. If Chiron is not for any reason manufacturing on behalf of the
Collaboration commercial supplies of a Product containing IGF-1, and
Cephalon is manufacturing the Product, Cephalon will receive [CONFIDENTIAL
TREATMENT REQUESTED] of the Operating Profits from the Major Markets and the
Royalty Territory, and Section 6.1 of the Agreement is hereby amended to add a
new clause (iii) after the word "except", which states in its entirety as
follows:
"(iii) if Chiron is not for any reason manufacturing on behalf of the
Collaboration commercial supplies of a Product containing IGF-1,
Cephalon will receive an additional [CONFIDENTIAL TREATMENT REQUESTED] of
the Operating Profits from the Major Markets and the Royalty Territory
attributable to Net Sales of any such Product that was manufactured by
Cephalon (the 'Manufacturing Premium') (i.e., for a total share of
[CONFIDENTIAL TREATMENT REQUESTED] of such Operating Profits)."
2. The payment by the Collaboration of Manufacturing Premium does not
operate as a waiver of any party's rights or obligations under the Agreement,
including Chiron's obligations to manufacture Products in accordance with the
terms of the Agreement.
3. Chiron has elected not to participate in Cephalon's option to
buy-down the royalty rate and license fees payable under a License Agreement
dated March 5, 1992, as amended, between Cephalon and The Salk Institute of
Biotechnology/Industrial Associates, Inc ("SIBIA"). Even if Cephalon
exercises its option to buy-down the SIBIA compensation, the Collaboration
will nevertheless continue to be responsible for the full amount of the
compensation (royalties and license fees) owed to SIBIA under the SIBIA
License as in effect before such buy-down, to the extent such compensation
results from the activities of the Collaboration. The payments of SIBIA
<PAGE>
Chiron Corporation
May 23, 1995
Page 2
compensation will be made to Cephalon, who will remit the appropriate amount
to SIBIA. As an illustration, assuming that before the buy-down the royalty
owed to SIBIA on sales of a Product in the Field is
[CONFIDENTIAL TREATMENT REQUESTED] and that Cephalon buys down
[CONFIDENTIAL TREATMENT REQUESTED] of the SIBIA royalty, the Collaboration
will pay Cephalon the [CONFIDENTIAL TREATMENT REQUESTED] royalty and Cephalon
will remit the [CONFIDENTIAL TREATMENT REQUESTED] royalty to SIBIA.
If the above accurately describes our understanding, please indicate
your agreement in the space provided below.
Sincerely yours,
/s/ Bruce A. Peacock
Bruce A. Peacock
Executive Vice President and
Chief Operating Officer
Acknowledged and agreed to by:
CHIRON CORPORATION
By: /s/ William G. Green
<PAGE>
EXHIBIT 11
CHIRON CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1994 1993
-------------- ----------- -----------
<S> <C> <C> <C>
EARNINGS PER SHARE
Net income (loss) available for
common shares and common
stock equivalent shares deemed
to have a dilutive effect $(512,463,000) $18,325,000 $18,384,000
-------------- ----------- -----------
Primary earnings (loss) per share $ (12.62) $ 0.53 $ 0.55
-------------- ----------- -----------
Fully diluted earnings (loss) per share $ (12.62) $ 0.53 $ 0.54
-------------- ----------- -----------
Shares used in primary earnings (loss)
per share computation:
Weighted average common shares
outstanding 40,610,000 32,972,000 32,094,000
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 common shares and
common stock equivalent
shares deemed to have a
dilutive effect 40,610,000 34,293,000 33,681,000
-------------- ----------- -----------
Shares used in fully dilutive earnings
(loss) per share computation:
Weighted average common shares
outstanding 40,610,000 32,972,000 32,094,000
Weighted average dilutive
incremental common
shares issuable from
exercise of warrants -- 103,000 89,000
Weighted average dilutive
incremental common shares
issuable under employee
stock option programs -- 1,638,000 2,116,000
-------------- ----------- -----------
Total common shares and
common stock equivalent
shares deemed to have a
dilutive effect 40,610,000 34,713,000 34,299,000
-------------- ----------- -----------
-------------- ----------- -----------
</TABLE>
<PAGE>
CHIRON CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Management's Discussion and Analysis.................................. 1
Consolidated Financial Statements..................................... 13
Notes to Consolidated Financial Statements............................ 18
Report of Independent Auditors........................................ 48
Market Price of Common Stock.......................................... 49
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
THE DISCUSSION BELOW CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES RELATING TO THE FUTURE FINANCIAL PERFORMANCE OF CHIRON
CORPORATION (THE "COMPANY" OR "CHIRON"), AND ACTUAL EVENTS OR RESULTS MAY DIFFER
MATERIALLY. IN EVALUATING SUCH STATEMENTS, STOCKHOLDERS AND INVESTORS SHOULD
SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED UNDER THE CAPTION "FACTORS
THAT MAY AFFECT FUTURE OPERATING RESULTS" WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
Chiron is a diversified, science-driven healthcare company that 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 four human
healthcare markets: (i) diagnostics, including blood screening tests, automated
immunodiagnostic systems, critical blood analyte systems and new quantitative
probe tests; (ii) therapeutics, with an emphasis on oncology, serious infectious
diseases and critical care diseases; (iii) adult and pediatric vaccines,
including vaccines under development and a genetically engineered acellular
pertussis vaccine, currently on the market in Italy and for which clinical
trials have been completed 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.
Chiron also develops or acquires new technologies, employing these technologies
to discover new products for the Company or for its partners. For example,
Chiron is developing a new generation of chemical therapeutics through advanced
techniques of drug design and discovery and is conducting an active program in
gene therapy.
ACQUISITIONS
As discussed further in Note 2 of Notes to Consolidated Financial
Statements, effective January 1, 1995, under a series of agreements between
Chiron and Ciba-Geigy Limited of Basel, Switzerland ("Ciba"), including an
investment agreement, a cooperation and collaboration agreement and a governance
agreement (collectively the "Agreements"), Ciba obtained a 49.9 percent
ownership interest in Chiron common stock (now approximately 47 percent). At the
same time, Chiron acquired all of the outstanding common stock of Ciba Corning
Diagnostics Corp. ("CCD") and Ciba's interests in Chiron Biocine Company
(formerly The Biocine Company) and Biocine S.p.A. (through JV Vax B.V., a
Netherlands company), in exchange for 6.6 million newly-issued Chiron common
shares and a cash payment of $23.5 million. The acquisitions of CCD and Ciba's
interests in Chiron Biocine Company and Biocine S.p.A. were accounted for under
the purchase method of accounting and resulted in a $222.9 million charge
against earnings for purchased in-process technology. The results of operations
of CCD, Biocine S.p.A. and Chiron Biocine Company are included in Chiron's
consolidated operating results from January 1, 1995, forward. Chiron's share of
the operating results of Biocine S.p.A. and Chiron Biocine Company were included
in the Company's 1994 and 1993 operating results under the equity method of
accounting.
In connection with the Agreements, Ciba agreed to guarantee $425 million of
new debt for Chiron and agreed to provide $250 million (which may be increased
up to $300 million subject to certain reductions in the debt guarantee) over
five years in support of research at Chiron, and Chiron has the option of
issuing up to $500 million of new equity to Ciba.
During 1995, Chiron and Ciba entered into a limited liability company
agreement to utilize research funding provided by Ciba, as discussed above.
Under the terms of the agreement, Ciba will fund from time to time through
December 31, 1999, at Chiron's request, research and development costs for adult
vaccines, pediatric vaccines and insulin-like growth factor-1. Annual funding
amounts are subject to certain limitations. In return, Ciba will receive an
interest in a stream of variable
1
<PAGE>
royalties from future worldwide sales of certain adult vaccines, certain
pediatric vaccines and insulin-like growth factor-1. Royalties will be paid for
a minimum period of ten years, subject to an extension under certain conditions,
following the later of October 1, 2001, or the date of the first commercial sale
of individual products covered by the agreement. In addition, Ciba will also
receive an interest in promotional rights, in countries other than in North
America and Europe, for certain adult vaccines.
Under the terms of the agreement Chiron was granted an option through
December 31, 2001, to repurchase Ciba's interest, at cost plus an agreed-upon
return. In addition, if Chiron chooses to exercise the option, Ciba will receive
an option to acquire exclusive marketing rights, in countries other than those
in North America and Europe, with respect to certain adult vaccines in countries
in which Ciba has exercised its co-promotion rights. Pursuant to the agreement,
Chiron received $27 million of funding from Ciba during 1995, which was recorded
as collaborative agreement revenues. Chiron anticipates receiving substantial
additional funding from Ciba in future periods, pursuant to the terms of the
agreements.
As discussed further in Note 2 of Notes to Consolidated Financial
Statements, on March 31, 1995, Chiron Vision acquired the surgical division of
IOLAB from Johnson & Johnson for approximately $95 million. The acquisition was
accounted for under the purchase method of accounting, and resulted in a $10.3
million charge against earnings for purchased in-process technology. The Company
recorded additional charges for restructuring and integration-related expenses
totaling $16.9 million. IOLAB's results of operations are included in Chiron's
consolidated operating results from March 31, 1995, forward.
As discussed further in Note 2 of Notes to Consolidated Financial
Statements, on September 29, 1995, Chiron acquired all the outstanding common
stock of Viagene, Inc. ("Viagene") in exchange for approximately $35.5 million
in cash and 916,000 shares of Chiron common stock. Additionally, on September
29, 1995, unexercised options to purchase Viagene common stock were converted
into options to purchase approximately 132,000 shares of Chiron common stock.
The acquisition was accounted for under the purchase method of accounting and
resulted in an approximately $130.3 million charge against earnings for
purchased in-process technology. Viagene's results of operations are included in
Chiron's consolidated operating results from September 29, 1995, forward. Prior
to September 29, 1995, Chiron accounted for its interest in Viagene at fair
value as a marketable equity investment.
RESULTS OF OPERATIONS
REVENUES
The Company's revenues are derived from a variety of sources, including
product sales, joint business arrangements, collaborative agreements and product
royalty agreements. 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>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Diagnostic products................................................... $ 541,113 $ 21,678 $ 13,704
Ophthalmic products................................................... 176,951 106,062 82,129
Vaccine products...................................................... 74,885 -- --
Betaseron-Registered Trademark-....................................... 67,666 100,121 11,774
Oncology products..................................................... 58,042 43,254 38,417
Other products........................................................ 4,196 4,851 1,869
----------- ----------- -----------
$ 922,853 $ 275,966 $ 147,893
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
As a result of the January 1995 acquisition of CCD, diagnostic product sales
now represent the largest component of product sales. For 1995, CCD added $510.1
million of new revenues to Chiron's
2
<PAGE>
operating results. CCD's product sales for 1994 and 1993, which are not included
in Chiron's results, were $455.7 million and $423.1 million, respectively. CCD
product sales include direct sales and sales-type leases of fully-automated
random-access immunodiagnostic (ACS-TM-) testing systems and reagents for these
systems, as well as sales of critical blood analyte systems (CBA-TM-), clinical
chemistry products and manual immunodiagnostic systems. Sales of diagnostic
systems often include the sale of service and maintenance contracts. Revenue
from these contracts is included in product sales revenue and is recognized
ratably over the life of the contracts. Both of CCD's major product lines,
immunodiagnostic systems and CBA systems, have continued to increase between
years due to increased market penetration, particularly in international
markets, ongoing menu expansion of existing ACS systems and the introduction in
1995 of a new CBA system product line (the 800 Series-TM-). Product sales for
CCD would have been approximately $17.8 million lower in 1995 if foreign
currency exchange rates had remained the same as in 1994.
Diagnostic product sales also include sales of nucleic acid probe products
and instrumentation and sales of antigens and RIBA-Registered Trademark- tests.
Nucleic acid probe products accounted for substantially all of the increase in
this category of revenue in 1994 over 1993 as Chiron began marketing these
products for research use in early 1993. Nucleic acid probe products are sold at
cost to Daiichi Pure Chemical Co., Ltd. ("Daiichi"), which markets the product
in Japan and pays Chiron a royalty based upon its sales of the product. Nucleic
acid probe products are also sold by Chiron on a Research Use Only basis in the
United States and Europe. Antigens and RIBA-Registered Trademark- test kits are
sold at cost to Ortho Diagnostic Systems, Inc. ("Ortho"), Chiron's partner in a
joint diagnostic business.
Sales of ophthalmic products continued to increase between years due to the
impact of the May 1994 acquisition of Laboratoires Domilens S.A. ("Domilens"),
the March 1995 acquisition of the surgical division of IOLAB and increased sales
of products incorporating foldable lens technology. Domilens contributed $26.1
million and $13.3 million of product sales for the years ended December 31, 1995
and 1994, respectively. The net impact of the acquisition of IOLAB and Domilens
and a change in the marketplace favoring foldable lens technology-based products
resulted in increased sales of $70.9 million in 1995. Sales of refractive
surgery products in 1995 were substantially consistent with that of 1994. The
impact of the Domilens acquisition and expanded sales of excimer lasers and
corneal shapers in 1994 resulted in product sales growth of $23.9 million over
1993.
Prior to Chiron's acquisition of Ciba's interest in Biocine S.p.A. on
January 1, 1995, the Company's share of the operating results of Biocine S.p.A.
were included as joint business revenues. Subsequent to January 1, 1995, Biocine
S.p.A. is consolidated as a wholly-owned subsidiary of Chiron with its vaccine
sales reflected as a component of total product sales. Vaccine product sales
consist of sales of pediatric and adult vaccines primarily in Italy and to
public health organizations. Biocine S.p.A.'s vaccine products include
Acelluvax-Registered Trademark-, a recombinant acellular pertussis vaccine;
Agrippal-Registered Trademark-, a flu vaccine; and Polioral-TM-, an oral polio
vaccine. Sales of Biocine S.p.A.'s flu vaccine are seasonal, with strong sales
generally occurring during the pre-flu season in the fourth quarter of the year.
Biocine S.p.A.'s product sales for 1994 and 1993, which are not included in
Chiron's results, were $56.7 million and $45.8 million, respectively. The
increase in Biocine S.p.A.'s vaccine product sales between 1995 and 1994 and
between 1994 and 1993 are due to increasing sales of
Acelluvax-Registered Trademark- and Polioral-TM- between each respective period.
Under the terms of a development and supply agreement with Schering AG,
Germany ("Schering"), and its U.S. affiliate, Berlex Laboratories, Inc.
("Berlex"), Chiron manufactures Betaseron-Registered Trademark- for Berlex.
Through December 31, 1994, Chiron manufactured Betaseron-Registered Trademark-
under the terms of an amended development and supply agreement whereby the
Company received payment for the product upon shipment to Berlex. Effective
January 1, 1995, Chiron exercised its option to revert to the terms of the
original Betaseron-Registered Trademark- supply agreement. Under those original
terms, Chiron earns a partial payment for Betaseron-Registered Trademark- upon
shipment to Berlex and a subsequent payment for Betaseron-Registered Trademark-
upon Berlex's net sales of the product.
3
<PAGE>
Because adequate inventory levels had previously been built by Berlex,
Chiron did not ship any commercial-use vials during the first quarter of 1995.
The combined impact in 1995 of the reversion to the terms of the original supply
agreement and a six percent reduction in volumes shipped to Berlex resulted in a
decrease in Betaseron-Registered Trademark- revenues from 1994 to 1995. Future
levels of Chiron's Betaseron-Registered Trademark- shipments will depend upon
the rate at which new patients are enrolled from existing and future markets,
the extent to which patients, once enrolled, remain compliant with the
prescribed treatment regimen and continue to regularly receive
Betaseron-Registered Trademark-, and the timing of approval and market launch of
competing products, including another beta interferon product.
Betaseron-Registered Trademark- product sales increased in 1994 over that of
1993 as 1994 was the first full year of commercial shipments of
Betaseron-Registered Trademark- and as Berlex continued to build product
inventories sufficient to supply all of the patients on the initial enrollment
list.
Sales of oncology products, principally Proleukin-Registered Trademark-,
increased between 1994 and 1995 due to an increase in
Proleukin-Registered Trademark- quantities sold of 23 percent and 24 percent,
respectively, in the European and domestic markets, as well as an increase of 14
percent and three percent, respectively, in average net unit selling prices in
the European and domestic markets. Oncology product sales increased from 1993 to
1994 as vials of Proleukin-Registered Trademark- sold increased by 11 percent
and 13 percent, respectively, in the European and domestic markets.
Proleukin-Registered Trademark- net unit sales prices increased by nine percent
in Europe but remained constant between 1994 and 1993 in the domestic market.
The Company markets many of its commercial products internationally. As a
result, product revenues in almost all product lines are affected by fluctuating
foreign currency exchange rates. Foreign product sales were approximately $519.4
million, $71.6 million and $47.0 million for the years ended December 31, 1995,
1994 and 1993, respectively. International sales of diagnostic products by CCD
and vaccine sales by Biocine S.p.A. accounted for substantially all of the
increase in foreign product sales from 1994 to 1995. Product sales would have
been approximately $26.1 million lower in 1995 if currency exchange rates had
remained the same as in 1994. In 1994, product sales would have been lower by
approximately $1.1 million if currency exchange rates had remained the same as
in 1993. For the year ended December 31, 1995, approximately 56 percent of
Chiron's product sales were denominated in foreign currencies. For the years
ended December 31, 1994 and 1993, approximately 26 percent and 32 percent,
respectively, of Chiron's product sales were denominated in foreign currencies.
Therefore, changing currency exchange rates have had, and will continue to have,
an impact on Chiron's results. The Company's other revenues, discussed below,
are largely denominated in U.S. dollars.
An important source of Chiron's revenues arises from its equity in the
earnings of unconsolidated joint businesses. As of December 31, 1995, Chiron
owned a 50 percent equity interest in two joint businesses: a joint diagnostic
business with Ortho and a generic cancer chemotherapeutics business with Ben
Venue Laboratories, Inc. Chiron's one-half interest in the pretax operating
earnings of its joint diagnostic business with Ortho represents the largest
component of joint business revenues. These revenues are recorded by Chiron on a
one-month lag based upon 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 recorded joint diagnostic business revenues of $76.9 million,
$74.3 million, and $77.1 million for the years ended December 31, 1995, 1994 and
1993, respectively. Revenue amounts include a nominal amount recognized in 1995
and 1994 as a result of the final 1994 and 1993 accounting respectively, and
$6.6 million recognized in 1993 as a result of the final 1992 accounting. The
Company anticipates that adjustments arising from the final 1995 accounting will
not be significant. Excluding the impact of these prior adjustments, Chiron's
share of the profits of the joint business has increased slightly throughout the
three-year period ended December 31, 1995.
4
<PAGE>
Approximately 78 percent of the sales of the Chiron-Ortho joint business
arise from sales of hepatitis C virus ("HCV") 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.
During 1994, the American Red Cross ("Red Cross") renegotiated a contract
with the Chiron-Ortho joint business which resulted in a lower selling price on
HCV tests. During 1995, the revenues of the joint business continued to be
negatively impacted by lower product margins resulting from the renegotiated
contract. Revenues were also negatively impacted as a result of changes in the
product mix whereby the proportion of higher margin HCV tests sold relative to
other lower-margin products decreased in 1995 as compared to 1994. Joint
business profits were also impacted by increased research and development
spending due to the ongoing development of new products and costs incurred to
increase market share in certain foreign markets. The impact on joint business
profits from reduced margins and additional research and development spending
was offset by increased royalty revenues and by the Company's share of a legal
settlement received from a competitor regarding certain European HCV patents.
During 1994, the revenues of the joint business were negatively impacted, when
compared to 1993, by the renegotiated supply contract with the Red Cross and
expiring supply contracts with members of the Council of Community Blood
Centers.
As noted previously, prior to January 1, 1995, the Company's share of
Biocine S.p.A.'s profits were included as joint business revenue. In 1994,
Chiron and Ciba entered into a settlement agreement with the former owner of
Biocine S.p.A. regarding a dispute over representations made in connection with
the acquisition of Biocine S.p.A. Included in joint business results for 1994
was approximately $4.8 million representing Chiron's share of this settlement.
Without the impact of the settlement, Chiron's joint business revenue from
Biocine S.p.A. for 1994 was $2.5 million and, for 1993, was not significant. The
increase in revenue from 1993 to 1994 was due primarily to increased sales 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 were not significant in any of the years in the three-year period ended
December 31, 1995.
Collaborative agreement revenue consists 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. Collaborative agreement revenues
decreased from 1994 to 1995 due to the January 1, 1995, acquisition of Ciba's
interest in Chiron Biocine Company. Prior to the acquisition, Chiron received
reimbursement for its vaccine research expenses from Chiron Biocine Company and
recorded such reimbursement as collaborative agreement revenue. After the
acquisition, Chiron Biocine Company became a wholly-owned subsidiary of Chiron
and thus no longer provides research revenues to Chiron. For the years ended
December 31, 1994 and 1993, the Company recognized revenues of $40.9 million and
$35.4 million, respectively, from Chiron Biocine Company. Further contributing
to the decrease in revenues in 1995 was the completion of a nucleic acid probe
development program with Daiichi and a payment received as reimbursement from a
collaborative research partner, each of which provided 1994 revenues of $3.0
million. Offsetting these decreases was $27.0 million of research funding
received from Ciba under the terms of a limited liability company agreement, as
discussed previously. Also included as collaborative agreement revenues in 1995
was $5.5 million received from Ciba for non-exclusive access to Chiron's
combinatorial chemistry techniques. Collaborative agreement revenues decreased
slightly from 1993 to 1994.
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 $14.8 million and $17.1 million in 1993 and 1994, respectively, to $22.5
million in 1995.
5
<PAGE>
In both years, this increase was largely due to increased sales of recombinant
human insulin and Japanese nucleic probe products. Other revenues also increased
in 1995 due to sales fees received from Ciba for sales of
Aredia-Registered Trademark-, for which Chiron began earning sales fee revenue
in late 1994, and nucleic probes reference laboratory service revenues which
contributed additional revenues of $4.2 million and $2.9 million, respectively,
in 1995.
COSTS AND EXPENSES
Cost of sales increased consistent with the increase in product sales
between years. Gross profit margins increased from 54 percent in both 1993 and
1994, respectively, to 55 percent in 1995. The gross profit margin was affected
negatively throughout 1995 as a result of a reversion to the original
Betaseron-Registered Trademark- supply agreement, discussed previously, and
additional operating expenses associated with the Company's Puerto Rico
manufacturing facility which was idled during 1995. Offsetting this downward
pressure was the addition of CCD's and Biocine S.p.A.'s higher margin product
sales in 1995. Gross margin percentages may fluctuate significantly in future
periods as the Company's product mix continues to evolve and as the costs of new
facilities are included in cost of goods sold.
Research and development expenses increased significantly between 1994 and
1995, largely due to the acquisitions of CCD and Biocine S.p.A. CCD and Biocine
S.p.A. added $71.3 million and $25.1 million, respectively, in research and
development expenses for 1995. For the years ended 1994 and 1993, CCD and
Biocine S.p.A. incurred research and development costs of $61.5 million and $9.2
million, and $62.0 million and $6.3 million, respectively, which are not
included in Chiron's results. Research and development activities at CCD consist
primarily of product development of new clinical diagnostic testing systems or
extensions of test menus on existing systems. Also included is the development
of quality control products and the development of data management software to
be used within a diagnostic testing system, or between the system and a
customer's laboratory information system. Research and development activities at
Biocine S.p.A. consist of development of new pediatric and adult vaccines as
well as efforts to obtain regulatory approvals of certain vaccines in the United
States and Europe. Adjusting for the impact of the acquisition of CCD and
Biocine S.p.A., Chiron's research and development expenses increased 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. As discussed further in Note 4
of Notes to Consolidated Financial Statements, new collaborative arrangements
entered into by Chiron during 1995 include the following:
- In March 1995, the Company reached an agreement with Progenitor, Inc.
("Progenitor"), a subsidiary of Interneuron Pharmaceuticals, Inc., to
collaborate in the development and commercialization of therapeutic and
vaccine products incorporating Progenitor's proprietary gene therapy
technology. Under the agreement, Chiron received a license to Progenitor's
nonviral gene expression system for use in the development of products for
the treatment of certain cancers and cardiovascular disorders, development
of infectious disease vaccines and for development of certain other gene
therapy products. Chiron will have the right to manufacture and market any
resulting products of the collaboration. In return for the license and
other rights, Chiron made certain financial commitments to Progenitor. In
addition, Progenitor will receive a royalty from any commercial sales of
products resulting from the collaboration.
- In March 1995, the Company reached an agreement with Genelabs
Technologies, Inc. ("Genelabs"), whereby Chiron and Genelabs
cross-licensed certain rights to HCV, hepatitis G virus ("HGV"), human
T-cell leukemia virus -- I ("HTLV-I") and human T-cell leukemia virus --
II ("HTLV-II") diagnostic tests. Under the agreement, Chiron acquired
certain rights to develop
6
<PAGE>
and market diagnostic products for the detection of HGV, HTLV-I and
HTLV-II. In return, Genelabs acquired development and marketing rights in
Asia, except Japan, for certain products incorporating Chiron's HCV
technology. Ortho, Chiron's joint diagnostic business partner, has agreed
to participate as Chiron's equal partner in the collaboration with
Genelabs and, therefore, will share equally in all payments under the
agreement, including equity investments.
- In March 1995, the Company reached an agreement with New York University
("NYU") under which Chiron acquired rights to optical mapping technology
for use by Chiron and its sublicensee, Ciba, in the development of
diagnostics, therapeutics and vaccines. Chiron also acquired the right to
commercialize a potential optical mapping instrument. In exchange for
these rights, Chiron and Ciba made certain financial commitments to NYU.
Also included in 1995 are payments totaling $25.3 million related to the
funding of certain collaboration expenses and the purchase of additional program
rights from Cephalon, Inc., an existing collaboration partner.
Expenditures were also incurred during 1995 relating to ongoing
collaboration efforts entered into during prior years. During 1995, $8.8 million
was paid pursuant to a collaboration with G.D. Searle & Co. ("Searle") for the
development and marketing of Tissue Factor Pathway Inhibitor ("TFPI") products;
$3.5 million of research and development expense was recognized pursuant to a
collaboration for the development and marketing of products incorporating
certain drug delivery technologies developed by DepoTech Corporation; and a $1.5
million payment was made pursuant to a collaboration with CytoMed, Inc.
("CytoMed") for the research, development and marketing of complement inhibitors
with therapeutic and diagnostic applications. Additionally, as discussed
previously, Chiron Viagene was acquired by the Company at the end of the third
quarter of 1995. Chiron Viagene is engaged in the discovery and development of
gene transfer drugs for the treatment of severe viral infections, cancers and
other diseases and added an additional $6.0 million of research and development
expense during 1995.
These new or continuing collaborations and program rights payments discussed
above contributed an additional $56.0 million to research and development
expense in 1995. The Company also increased spending at Chiron Vision by $6.2
million over that of 1994 due to a general increase in costs resulting from the
acquisition of IOLAB and inclusion of a full year of research and development
activity at Domilens. In addition, research and development expenses increased
due to higher levels of spending on the development of certain
phacoemulsification products and greater clinical activity for certain other
products. In 1996, the Company expects that research and development expense
will increase over prior years, as Chiron continues to incur expenses in its
collaborations, including those discussed above, and as Chiron expands its
diagnostics, vaccines, therapeutics and ophthalmics 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 1994 and 1993, research and development expenses increased as the
Company entered into collaboration arrangements and incurred costs to move
products in development towards commercialization. New collaboration agreements
in 1994 resulting in increased research and development expense over 1993
included the following:
- Chiron and CytoMed entered into a collaboration agreement for the
research, development and marketing of complement inhibitors with
therapeutic and diagnostic applications. Chiron agreed to make certain
milestone payments and to reimburse CytoMed for a portion of its research
and development expense during 1995 and 1996. Additionally, Chiron
invested $1.3 million in CytoMed capital stock and warrants which was
expensed in 1994.
7
<PAGE>
- Chiron and Searle entered into a collaboration agreement for the research,
development and marketing of TFPI products. Chiron made a $3.5 million
payment to Searle and agreed to fund its own collaboration-related
expenses through 1994. In 1994, Chiron's research and development expenses
related to this collaboration totaled approximately $6.5 million.
These collaborations, among others, added approximately $9.1 million of
research and development expenses in 1994. Spending in the vaccines program
increased by approximately $11.2 million over 1993 due to clinical trial and
manufacturing expenses for vaccines then in development. Additionally, the
Company purchased an option from Johnson & Johnson to participate in a home HIV
testing business, of which $5.8 million was expensed in 1994.
Selling, general and administrative expenses ("SG&A expenses") increased
significantly from 1994 to 1995 primarily due to the impact of the acquisition
of CCD and Biocine S.p.A. CCD and Biocine S.p.A. added $179.5 million and $18.2
million, respectively, in SG&A expenses in 1995. For the years ended 1994 and
1993, CCD and Biocine S.p.A. incurred SG&A expenses of $157.8 million and $21.8
million, and $149.4 million and $18.7 million, respectively, which are not
included in Chiron's results. SG&A expenses in the ophthalmic business were
higher in 1995 due to the acquisition of IOLAB and increased costs related to
the ophthalmic sales force, resulting from the integration of Chiron Vision's
operations with IOLAB. Selling and marketing expenses represent the largest
portion of total SG&A expenses in all periods as Chiron devoted significant
resources to support sales volumes in the diagnostics, ophthalmics, therapeutics
and vaccines product lines. SG&A expenses increased between 1993 and 1994 due to
the acquisition of Domilens, which added $5.8 million of SG&A expenses in 1994,
and higher legal costs associated with Chiron's defense of HCV patents.
The write-off of purchased in-process technology consists of $222.9 million
for the acquisitions of CCD, Biocine S.p.A. and Chiron Biocine Company, $130.3
million for the acquisition of Viagene and $10.3 million for the acquisition of
IOLAB. Also included was $1.8 million related to the acquisition of an
additional interest in a subsidiary of Chiron Vision. The fair value of the net
assets acquired in the acquisitions of CCD, Biocine S.p.A., Chiron Biocine
Company and IOLAB, including in-process technology, were estimated based on
independent valuations of the acquired net assets. The fair value of the net
assets acquired in the Viagene acquisition were determined to be equal to book
value as Viagene was an early-stage company with no intangible assets other than
in-process technology. Amounts allocated to base technology for CCD, Biocine
S.p.A. and IOLAB were $21.6 million, $6.6 million and $27.0 million,
respectively, and are being amortized over periods ranging from 10 to 15 years
using the straight-line method. Approximately $11.6 million was allocated to
goodwill for IOLAB and is being amortized using the straight-line method over 15
years.
In 1995, costs related to the Ciba transaction consist primarily of employee
payments and related tax liabilities and legal and investment advisor fees.
Under the Agreements reached with Ciba, Ciba reimbursed the Company $24.8
million for a portion of the employee payments and such reimbursement was
recorded as a capital contribution.
Restructuring and reorganization costs in 1995 represent certain accrued
costs of integrating the acquired businesses with Chiron's existing businesses,
costs related to the idling of the Company's Puerto Rico manufacturing facility
and the scaling-back of manufacturing operations at the Company's Amsterdam
facility, and costs related to the write-down of duplicate facilities at the
Company's Emeryville, California, headquarters. Also included was a charge
related to the change in plans to expand the Company's Emeryville research and
administrative facilities. Of the $39.1 million in total charges in 1995,
approximately $27.1 million related to write-downs of assets, including $8.0
million related to the change in plans for expansion of the Company's research
and administrative facilities. The remaining charges of $12.0 million consisted
of employee costs of $5.5 million and lease termination and other costs of $6.5
million. The majority of the remaining accrued costs are expected to be paid
through 1996.
8
<PAGE>
Other operating expenses consist primarily of the amortization of purchased
technologies and goodwill. The increase in other operating expenses in 1995 over
that of 1994 is the result of increased amortization of purchased technologies,
goodwill and other intangible assets arising from the 1995 acquisitions of CCD,
Biocine S.p.A. and IOLAB. Purchased technology and goodwill arising from these
acquisitions are being amortized over periods from 10 to 15 years. Other
intangible assets acquired, such as the assigned fair value of customer lists
and tradename, are being amortized over periods from 10 to 15 years. Other
operating expenses in 1994 are primarily comprised of amortization of purchased
technologies. Other operating expenses in 1993 also included a credit of $6.0
million arising from the settlement of a legal dispute.
OTHER ITEMS
Other income (expense), net, consists primarily of investment income on the
Company's cash and investment balances and interest expense on convertible
subordinated debentures, other debt and capital leases. Included in other income
(expense), net, in 1995 is additional interest expense of $6.8 million relating
to debt acquired as a result of the acquisition of CCD and Biocine S.p.A. and a
gain on the sale of land of $3.0 million. Also contributing to the change in
other income (expense), net, from 1994 to 1995 is a decrease of $4.0 million in
1995 of interest capitalized on the Company's capital projects. Other income
(expense), net, decreased 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 certain marketable
investments in 1994 whose fluctuation in fair value was deemed to be "other than
temporary" under Statement of Financial Accounting Standards No. 115.
The provision for income taxes in 1995 consists primarily of foreign taxes
on certain foreign operations of the Company. The amount of foreign taxes paid
by the Company increased in 1995 over 1994 largely due to the acquisition of CCD
and Biocine S.p.A., each of which have operations in foreign countries upon
which income tax is paid. Contributing to the change in the effective tax rate
from 1994 to 1995 is the write-off of purchased in-process technologies in 1995,
substantially all of which is not deductible for income tax purposes and thus
does not create a tax benefit in 1995. The effective tax rate increased from
1993 to 1994 due to federal net operating loss benefits which were substantially
depleted in 1993. Also contributing to the increase in the effective tax rate in
1994 over 1993 was the write-down of certain marketable investments in 1994
which did not create a corresponding tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
Chiron's capital requirements are funded from public and private sales of
equity and convertible debt and cash provided by operations. In addition to
these sources of capital, future capital requirements may be financed through a
combination of debt, utilization of funding from Ciba, possible off-
balance-sheet financing (such as R&D limited partnerships and operating leases),
cash generated from operations and the use of existing cash and investment
balances. 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. To the extent that Chiron has balance
sheet exposure resulting from completed transactions denominated in a foreign
currency, the Company's policy is to mitigate exposure to exchange rate changes
by entering into forward currency contracts. These contracts are settled
quarterly. At December 31, 1995, the Company had outstanding forward currency
contracts totaling approximately $65.1 million. In addition, although there were
no amounts
9
<PAGE>
outstanding at December 31, 1995, the Company has commenced a program,
consisting of purchased average rate options, designed to reduce the impact of
fluctuating foreign currency exchange rates on the results of anticipated
transactions.
In 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 production capability for
Betaseron-Registered Trademark- by improving its production facilities in
Emeryville, California, The Netherlands and through the purchase and subsequent
investments in a pharmaceutical fill and finishing facility in Puerto Rico.
Additionally, Chiron is expanding its vaccine production facilities in Italy and
has completed the construction of a facility in Vacaville, California, for use
in growth factor production and has completed a remodeling effort in a facility
in St. Louis, Missouri. The Company has also completed the construction of
additional administration, research and development, and production facilities
for its diagnostic systems products in Walpole, Massachusetts. The majority of
Chiron's capital expenditures of $101.1 million in 1995 related to the
manufacturing expansion activities discussed above.
In 1995, the Company decided to idle its Puerto Rico facility and scale-back
the manufacturing operations at the Company's Amsterdam facility. This decision
was based on the belief that current demand for Betaseron-Registered Trademark-
can be adequately supplied with the expanded manufacturing capability at the
Company's Emeryville, California, facility. Full utilization of the additional
Betaseron-Registered Trademark- manufacturing capability will require a
significant increase in product demand. If this substantial increase does not
occur, a significant portion of Betaseron-Registered Trademark- manufacturing
capability will be underutilized. Chiron is considering alternative options
concerning the Puerto Rico facility, including manufacturing other products in
that facility. The facility in Amsterdam is currently being used for production
of bacterial vaccines, production of clinical grade materials and as a pilot
plant for process development.
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. This expansion is projected to occur in
stages over the next thirty years. 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.
During the year ended December 31, 1995, cash and cash equivalents decreased
by approximately $10.6 million. Of this amount, approximately $34.0 million was
used in the Company's operating activities, compared to $15.2 million provided
by operating activities in 1994. In 1993, operating activities provided cash of
approximately $15.4 million.
Investing activities consumed cash of $43.1 million in 1995, versus $107.4
million and $140.3 million in 1994 and 1993, respectively, largely in support of
continued capital expansion and the acquisitions of IOLAB and Viagene. Chiron
received $14.2 million, net of cash paid, in its acquisition of CCD, Biocine
S.p.A. and Chiron Biocine Company. Net of cash acquired, Chiron expended $95.0
million and $28.6 million, respectively, to acquire IOLAB and Viagene. Capital
expenditures on plant and equipment were $101.1 million during 1995, versus
$105.7 million and $115.2 million in 1994 and 1993, respectively. Cash provided
by financing activities of $66.6 million in 1995 largely reflects cash proceeds
of $24.8 million received from Ciba as a capital contribution pursuant to the
Agreements, as discussed previously, as well as $31.6 million and $9.0 million,
respectively, received from the exercise of stock options and for issuance of
stock under the Company's employee stock purchase plan.
10
<PAGE>
Chiron believes that its cash and cash equivalents and short and long-term
investments, together with funds provided by operations and the funding
arrangements discussed above will be sufficient to meet its cash requirements
during the upcoming twelve months and through the foreseeable future.
SUBSEQUENT EVENT
On February 17, 1996, Chiron and Behringwerke AG, a subsidiary of Hoechst
AG, reached an agreement whereby Chiron will purchase a 49 percent interest in
the human vaccine business of Behringwerke AG for Deutsche mark 171.5 million in
cash. Under the terms of the agreement, Chiron has an option to purchase the
remaining 51 percent interest in March 1998, 1999, 2000 or 2001 and Behringwerke
AG has the option to have Chiron acquire the remaining 51 percent interest in
March 2001. During the period of mutual ownership, Chiron and Behringwerke AG
will operate the vaccine business as a joint venture. Chiron will report its
share of the joint venture's results as equity in earnings of unconsolidated
joint businesses. Consummation of the transaction is subject to certain
conditions, including regulatory approvals and customary conditions prior to
closing.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Chiron wishes to caution stockholders and investors that the following
important factors, among others, in some cases have affected, and in the future
could affect, Chiron's actual results and could cause Chiron's actual
consolidated results for the first quarter of 1996, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Chiron. The statements under this caption are intended to serve as
cautionary statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The following information is not intended to limit in any
way the characterization of other statements or information under other captions
as cautionary statements for such purpose:
- Delays, difficulties or failure in obtaining regulatory approval
(including approval of its facilities for production) for the Company's
products, including delays or difficulties in development because of
insufficient proof of safety or efficacy.
- Inability to maintain or initiate third party arrangements which generate
revenues, in the form of license fees, research and development support,
royalties and other payments, in return for rights in technology or
products under development by the Company.
- Delays or difficulties in developing and acquiring production technology
and technical and managerial personnel to manufacture novel biotechnology
products in commercial quantities at reasonable costs and in compliance
with applicable quality assurance and environmental regulations and
governmental permitting requirements.
- Difficulties in obtaining key raw materials and supplies for the
manufacture of the Company's products.
- Increased and irregular costs of development, regulatory approval,
manufacture, sales, and marketing associated with introduction of products
in the late stage of development.
- Difficulties in launching or marketing the Company's products, many of
which are novel products based on biotechnology, and unpredictability of
customer acceptance of such products.
- The ability and willingness of customers to substitute competitive
products for the Company's products once other products for similar
indications are approved for marketing.
- Continued flattened growth rate in the Betaseron-Registered Trademark-
customer base in the U.S.; the extent to which patients, once enrolled,
remain compliant with the prescribed treatment regimen and continue to
regularly receive Betaseron-Registered Trademark-; timing, approval and
market launch of competing products, including another beta interferon
product; pricing, promotional and marketing decisions by the Company's
partner, Schering.
11
<PAGE>
- Continued lower product margins resulting from the Chiron-Ortho joint
business' renegotiated contract with the American Red Cross; changes in
the product mix whereby the proportion of higher margin HCV tests sold
relative to other lower margin products is less; continued increases in
research and development spending in order to develop new products and
increase market share; introduction of competing tests by unlicensed third
parties.
- Continued or increased pressure to reduce selling prices of the Company's
products and possible negative effect on CCD revenues as product mix
shifts from manual to automated equipment.
- Underutilization of the Company's existing or new manufacturing facilities
or of any facility expansions, resulting in production inefficiencies and
higher costs; start-up costs and inefficiencies and delays and increased
depreciation costs in connection with the start of production in new
plants and expansions.
- The cost of acquiring in-process technology, either by license,
collaboration or purchase of another entity.
- Amount and rate of growth in Chiron's selling, general and administrative
expenses; and the impact of unusual or infrequent charges resulting from
Chiron's ongoing evaluation of its business strategies and organizational
structures, including the continued costs of integration of newly acquired
businesses.
- The acquisition of fixed assets and other assets, including inventories
and receivables; and the making or incurring of any expenditures and
expenses, including, among others, depreciation and research and
development expenses; any revaluation of assets, including, among others,
the Company's investments in the equity securities of other companies with
whom it collaborates, or related expenses, and the amount of, and any
changes to, tax rates.
- The ability or inability of Chiron to obtain, or hedge against, foreign
currency, foreign exchange rates and fluctuations in those rates.
- The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as product-related or environmental, or
criminal); settlements and investigations; developments or assertions by
or against Chiron relating to intellectual property rights and licenses;
the issuance and use of patents and proprietary technology by Chiron and
its competitors, including the possible negative effect on the Company's
ability to develop, manufacture and sell its products in circumstances
where it is unable to obtain licenses to patents which may be required for
such products.
- Failure of corporate partners to commercialize successfully the Company's
products or to retain and expand the markets served by the commercial
collaborations; conflicts of interest, priorities and commercial
strategies which may arise between the Company and such corporate
partners.
- Health care reform and the reimbursement status of newly approved
healthcare products.
12
<PAGE>
CHIRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 74,318 $ 84,876
Short-term investments in marketable debt securities.............................. 61,066 137,619
------------- -------------
Total cash and short-term investments in marketable debt securities............. 135,384 222,495
Accounts receivable, net of allowances of $18,524 in 1995 and
$7,210 in 1994:
Related parties................................................................. 30,157 42,694
Unrelated parties............................................................... 255,622 97,782
------------- -------------
285,779 140,476
Inventories....................................................................... 165,941 47,592
Other current assets.............................................................. 49,899 23,252
------------- -------------
Total current assets............................................................ 637,003 433,815
Noncurrent investments in marketable debt securities................................ 88,833 171,328
Property, plant, equipment and leasehold improvements, at cost:
Land and buildings................................................................ 208,233 60,930
Laboratory, production and office equipment....................................... 292,828 140,438
Leasehold improvements............................................................ 95,472 82,145
Construction in progress.......................................................... 62,046 78,998
------------- -------------
658,579 362,511
Less accumulated depreciation and amortization.................................... (140,761) (76,337)
------------- -------------
Net property, plant, equipment and leasehold improvements....................... 517,818 286,174
Purchased technology, net of accumulated amortization of $21,508 in 1995 and $13,854
in 1994............................................................................ 80,600 35,878
Other intangible assets, net of accumulated amortization of $27,712 in 1995 and
$19,731 in 1994.................................................................... 71,571 49,925
Investments in equity securities and affiliated companies........................... 54,359 51,425
Other assets........................................................................ 40,014 21,197
------------- -------------
$ 1,490,198 $ 1,049,742
------------- -------------
------------- -------------
</TABLE>
(Continued)
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
13
<PAGE>
CHIRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................................................. $ 81,081 $ 27,778
Accrued compensation and related expenses......................................... 56,994 24,010
Short-term borrowings............................................................. 50,036 --
Current portion of unearned revenue............................................... 20,838 1,544
Taxes payable..................................................................... 27,551 10,060
Payable to The Biocine Company.................................................... -- 8,645
Other current liabilities......................................................... 132,095 47,604
------------- -------------
Total current liabilities....................................................... 368,595 119,641
Long-term debt:
Payable to Ciba................................................................... 62,949 8,729
Unrelated parties................................................................. 350,299 329,332
------------- -------------
413,248 338,061
Other noncurrent liabilities........................................................ 35,943 19,409
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
none outstanding................................................................. -- --
Common stock, $0.01 par value; 99,500,000 shares authorized; 41,737,849
outstanding (33,378,937 outstanding at December 31, 1994)........................ 417 334
Restricted common stock, $0.01 par value; 500,000 shares authorized; none
outstanding...................................................................... -- --
Additional paid-in capital........................................................ 1,727,711 1,161,942
Accumulated deficit............................................................... (1,087,699) (575,236)
Cumulative foreign currency translation adjustment................................ 721 (1,719)
Unrealized gain (loss) from investments........................................... 31,262 (12,690)
------------- -------------
Total stockholders' equity...................................................... 672,412 572,631
------------- -------------
$ 1,490,198 $ 1,049,742
------------- -------------
------------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
14
<PAGE>
CHIRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Product sales, net:
Related parties..................................................... $ 21,483 $ 11,787 $ 11,382
Unrelated parties................................................... 901,370 264,179 136,511
------------- ------------ -----------
922,853 275,966 147,893
Equity in earnings of unconsolidated joint businesses................. 80,356 82,395 77,739
Collaborative agreement revenues:
Related parties..................................................... 47,921 53,970 51,226
Unrelated parties................................................... 10,160 13,531 17,717
------------- ------------ -----------
58,081 67,501 68,943
Other revenues:
Related parties..................................................... 11,156 5,439 2,831
Unrelated parties................................................... 28,136 22,678 20,129
------------- ------------ -----------
39,292 28,117 22,960
------------- ------------ -----------
Total revenues.................................................... 1,100,582 453,979 317,535
Expenses:
Cost of sales......................................................... 415,798 128,209 68,484
Research and development.............................................. 343,752 166,175 140,030
Selling, general and administrative................................... 357,066 109,990 95,790
Write-off of purchased in-process technologies........................ 365,286 -- --
Costs related to Ciba transaction..................................... 49,407 2,117 --
Restructuring and reorganization charges.............................. 39,056 -- --
Other operating expenses.............................................. 12,645 5,088 (1,907)
------------- ------------ -----------
Total expenses.................................................... 1,583,010 411,579 302,397
------------- ------------ -----------
Income (loss) from operations........................................... (482,428) 42,400 15,138
Other income (expense), net............................................. (8,346) (10,403) 7,949
------------- ------------ -----------
Income (loss) before income taxes....................................... (490,774) 31,997 23,087
Provision for income taxes.............................................. 21,689 13,672 4,703
------------- ------------ -----------
Net income (loss)....................................................... $ (512,463) $ 18,325 $ 18,384
------------- ------------ -----------
------------- ------------ -----------
Net income (loss) per share............................................. $ (12.62) $ 0.53 $ 0.55
------------- ------------ -----------
------------- ------------ -----------
Weighted average number of shares used in calculating per share
amounts................................................................ 40,610 34,293 33,681
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
15
<PAGE>
CHIRON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN UNREALIZED
COMMON STOCK ADDITIONAL CURRENCY GAIN (LOSS) TOTAL
---------------------- PAID-IN ACCUMULATED TRANSLATION FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT INVESTMENTS EQUITY
--------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of common stock to
Ciba-Geigy........................ 6,600 66 407,484 -- -- -- 407,550
Capital contribution by Ciba-
Geigy............................. -- -- 24,845 -- -- -- 24,845
Issuance of common stock and stock
options related to the Viagene
acquisition....................... 916 9 91,393 -- -- -- 91,402
Exercise of stock options,
including tax effect.............. 670 6 32,921 -- -- -- 32,927
Exercise of stock warrants......... -- -- 97 -- -- -- 97
Employee stock purchase plan....... 173 2 9,029 -- -- -- 9,031
Foreign currency translation
adjustment........................ -- -- -- -- 2,440 -- 2,440
Unrealized gain from investments... -- -- -- -- -- 43,952 43,952
Net loss........................... -- -- -- (512,463) -- -- (512,463)
--------- ----- ------------ ------------ ----------- ----------- ------------
Balances at December 31, 1995...... 41,738 $ 417 $ 1,727,711 $ (1,087,699) $ 721 $ 31,262 $ 672,412
--------- ----- ------------ ------------ ----------- ----------- ------------
--------- ----- ------------ ------------ ----------- ----------- ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
16
<PAGE>
CHIRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... $ (512,463) $ 18,325 $ 18,384
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 99,097 49,429 25,040
Write-off of purchased in-process technologies...................... 365,286 -- --
Write-offs of fixed assets.......................................... 18,400 -- 477
Reserves............................................................ 11,321 15,892 5,740
Deferred income taxes............................................... 9,041 -- 4,680
Settlement of Cetus acquisition contingencies....................... -- -- (13,387)
Write-down of investments in equity securities...................... -- 11,607 --
Undistributed (earnings) loss of affiliates......................... (3,944) (5,666) 112
Changes, excluding effect of acquisitions, to:
Accounts receivable............................................... 2,000 (58,019) (18,086)
Inventories....................................................... (36,094) (7,394) (18,302)
Other current assets.............................................. (21,462) (13,692) 201
Accounts payable and accrued expenses............................. 7,719 8,535 5,530
Payable to The Biocine Company.................................... -- 1,658 6,049
Other current liabilities......................................... 21,808 2,542 (6,687)
Current portion of unearned revenue............................... 5,979 (10,132) 9,294
Other noncurrent liabilities...................................... (719) 2,086 (3,596)
------------ ------------ ------------
Net cash provided by (used in) operating activities............. (34,031) 15,171 15,449
Cash flows from investing activities:
Purchase of investments in marketable debt securities................. (158,533) (180,365) (680,657)
Sale and maturity of investments in marketable debt securities........ 334,117 232,900 686,006
Businesses acquired, net of cash acquired............................. (112,633) (17,726) --
Capital expenditures.................................................. (101,052) (105,691) (115,185)
Investments in equity securities and affiliates....................... (900) (24,010) (20,385)
Increase in other assets.............................................. (4,124) (12,525) (10,103)
------------ ------------ ------------
Net cash used in investing activities........................... (43,125) (107,417) (140,324)
Cash flows from financing activities:
Net borrowings under line of credit arrangements...................... 4,686 -- --
Proceeds from issuance of convertible debentures and long-term debt... 860 -- 209,363
Proceeds from issuance of common stock................................ 40,772 27,126 28,598
Proceeds from capital contribution from Ciba.......................... 24,845 -- --
Repayment of notes payable and capital leases......................... (4,565) (6,520) (2,319)
------------ ------------ ------------
Net cash provided by financing activities....................... 66,598 20,606 235,642
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents............ (10,558) (71,640) 110,767
Cash and cash equivalents at beginning of the year...................... 84,876 156,516 45,749
------------ ------------ ------------
Cash and cash equivalents at end of the year............................ $ 74,318 $ 84,876 $ 156,516
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of this statement.
17
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Chiron Corporation (the "Company" or "Chiron") is a diversified,
science-driven healthcare company that 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 four global human healthcare markets:
diagnostics, therapeutics, pediatric and adult vaccines, and ophthalmic surgical
products. Chiron also has research programs underway in gene therapy and gene
transfer, combinatorial chemistry, cardiovascular disease and critical care.
Chiron's diagnostic business includes immunodiagnostics, critical care
diagnostics and quantitative probe tests. Chiron, through its subsidiary Ciba
Corning Diagnostics Corp. ("CCD"), provides critical blood analyte systems which
are used by hospitals to diagnose and monitor patients in critical care
settings. Chiron also provides blood screening tests, used to detect the
presence of hepatitis viruses and retroviruses, through its joint business with
Ortho Diagnostic Systems, Inc. ("Ortho"), a Johnson & Johnson company. Chiron's
therapeutics business emphasizes oncology and infectious diseases, and provides
products to hospitals and large clinics in the United States and Europe.
Chiron's vaccine business is based primarily on the sale of non-recombinant
pediatric and flu vaccines in Italy and to a lesser extent in Southern Europe
and other geographic regions and to certain international health services.
Chiron is also involved in the development and marketing of new pediatric and
adult vaccines. Through its ophthalmic business, Chiron provides products for
the surgical correction of vision, as well as intraocular implants for drug
delivery to the eye. Chiron's ophthalmic business markets its products in the
United States, Europe, and other geographic regions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Investments in joint
ventures, partnerships and interests 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" ("SFAS 115"), as
appropriate. Certain foreign subsidiaries are accounted for on a one-month lag.
Certain previously reported amounts have been reclassified to conform with the
current period presentation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates.
FISCAL YEAR
During 1995, the Company changed its fiscal year from December 31 each year
to a 52 or 53-week year ending on the Sunday nearest the last day in December of
each year. Therefore, the 1995 fiscal year ended on December 31 and was 52 weeks
long. Fiscal 1994 and 1993 were under the calendar year ending on December 31.
For presentation purposes, dates used in the consolidated financial statements
and notes refer to the calendar month end.
18
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS AND INVESTMENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents. Cash equivalents and
short-term investments consist principally of money market instruments which
include: corporate notes, corporate bonds, time deposits, Euro-
dollar certificates of deposits, commercial paper, and government or government
agency securities. Noncurrent investments consist principally of corporate
notes, corporate bonds, government or government agency securities, and
investments in affiliated companies.
INVENTORIES
Pharmaceutical inventories are stated at the lower of cost or market using
the average cost method or, in the case of vaccine products, using the last-in,
first-out ("LIFO") method. Diagnostic and ophthalmic products are valued at
cost, using the first-in, first-out ("FIFO") method which is less than market
value. Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
(IN THOUSANDS)
Finished goods................................................................. $ 96,327 $ 24,402
Work in process................................................................ 28,794 8,650
Raw materials.................................................................. 40,820 14,540
----------- ---------
$ 165,941 $ 47,592
----------- ---------
----------- ---------
</TABLE>
PROPERTY, PLANT, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, plant, equipment and leasehold improvements are stated at cost.
Depreciation on property, plant 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 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.
LONG-LIVED ASSETS, INCLUDING INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company evaluates whether changes have occurred that would
require revision of the remaining estimated lives of recorded long-lived assets,
including intangible assets, or rendered those assets not recoverable. If such
circumstances arise, recoverability is determined by comparing the undiscounted
net cash flows of long-lived assets to their respective recorded net book
values. The amount of impairment, if any, is measured based on projected
discounted net cash flows using an appropriate discount rate. At this time, the
Company believes that no significant impairment of long-lived assets, including
intangible assets, has occurred and that no reduction of the estimated useful
lives of such assets is warranted.
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, 1995, 1994 and 1993, was $19.2 million, $9.5 million and $6.1
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.
19
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE
Revenue from product sales consists of shipments of diagnostic materials and
instruments, ophthalmic and vaccine products, therapeutics, and other
biologicals and is generally recognized upon shipment. Revenue from service
contracts is recognized ratably over the life of the contract. Revenue from the
sale of equipment under sales-type leases is recognized at the inception of the
lease. All of the types of revenues discussed above are included in "Product
sales, net" in the Consolidated Statement of Operations. During 1994 and 1993,
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 its
marketing partner. During 1995, the Company reverted to the terms of the
original supply agreement. Under the terms of the original agreement, Chiron
recognizes a partial share of Betaseron-Registered Trademark- revenues upon
shipment and an additional share upon subsequent sale of the product by its
marketing partner.
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. Under contracts where reimbursement is
based upon work performed, the related research and development expenses were
$51.8 million, $72.4 million and $61.5 million in 1995, 1994 and 1993,
respectively. Other revenues consist primarily of royalty payments under license
agreements, sales fees and grants from federal or state governments and are
recognized when earned.
PER SHARE DATA
Per share information is based on the weighted average number of common and
dilutive common equivalent shares outstanding. Common equivalent shares result
from the assumed exercise of outstanding stock options and warrants that have a
dilutive effect when applying the treasury stock method. 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 anti-dilutive.
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
Supplemental disclosure to the Consolidated Statement of Cash Flows for the
years ended December 31, 1995, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Tax effect of stock option deductions................................. $ 912 $ 9,895 $ --
Cash paid for interest................................................ 18,603 12,866 8,518
Cash paid for income taxes............................................ 8,597 1,263 2,393
</TABLE>
20
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Supplemental disclosure regarding noncash investing and financing activities
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Acquisitions:
Fair value of assets acquired..................................... $ 962,124 $ 42,810 $ --
Liabilities assumed............................................... (289,025) (24,103) --
Acquisition costs................................................. (6,013) -- --
Stock and options issued.......................................... (498,952) -- --
Carrying value of original investment............................. (14,130) -- --
------------ --------- ---------
Total cash paid..................................................... $ 154,004 $ 18,707 $ --
------------ --------- ---------
------------ --------- ---------
</TABLE>
During 1995, Chiron acquired all of the outstanding common stock of CCD, the
interests of Ciba-Geigy Ltd. and its affiliates ("Ciba") in Chiron Biocine
Company (formerly The Biocine Company) and Biocine S.p.A. (through JV Vax B.V.,
a Netherlands company), in exchange for 6.6 million newly-issued shares of
Chiron common stock and a cash payment of $23.5 million. The fair value of
assets acquired in the transaction was $694.9 million, and liabilities of $261.5
million were assumed by the Company.
During 1995, Chiron acquired the surgical products division of IOLAB for
approximately $95.0 million in cash. The fair value of assets acquired in the
transaction (including goodwill and purchased in-process technology) was $108.8
million, and liabilities of $12.8 million were assumed by the Company.
During 1995, Chiron acquired all of the outstanding common stock of Viagene,
Inc. ("Viagene"), not previously owned by the Company, in exchange for
approximately $35.5 million in cash and 916,000 shares of Chiron common stock.
Additionally, unexercised options to purchase Viagene stock were converted into
options to purchase approximately 132,000 shares of Chiron common stock. The
fair value of assets acquired (including purchased in-process technology) was
$158.5 million, and liabilities of $14.7 million were assumed by the Company.
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. The Company has established a
control environment which includes policies and procedures for risk assessment
and the approval, reporting and monitoring of foreign currency hedging
activities. The use of specific foreign currency hedging contracts is determined
by the Company's objective to hedge material foreign receivables and payables
for which the costs of hedging are not excessive. The
21
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company does not use hedging contracts for trading or speculative purposes.
Counterparties to these hedging agreements are major international financial
institutions. All foreign currency contracts are denominated in currencies of
major industrial countries (primarily the German mark, Japanese yen, French
franc, and Australian dollar). 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 13, 1995, 1994 and
1993.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash investments and trade accounts
receivable. The Company invests cash which is not required for immediate
operating needs principally in a diversified portfolio of financial instruments
issued by institutions 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.
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, vaccine 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. Participating employees may defer a portion of their pretax
earnings up to the Internal Revenue Service annual contribution limit. The
Company matches employee contributions according to a specified formula. The
Company's matching contributions totaled $2.2 million, $1.8 million and $1.3
million in 1995, 1994 and 1993, respectively.
MAJOR CUSTOMERS
During 1995, no single customer contributed ten percent or more to total
revenues. As discussed in Notes 2 and 4, Ciba is a related party and contributed
11 percent and 13 percent of total revenues in 1994 and 1993, respectively. As
discussed in Note 4, Johnson & Johnson and its affiliates are related parties
and collectively contributed 22 percent and 32 percent of total revenues during
1994 and 1993, respectively. Sales of Betaseron-Registered Trademark- to
Chiron's marketing partner accounted for less than ten percent of total revenues
in 1995 and 1993, and 23 percent in 1994.
NOTE 2 -- BUSINESS COMBINATIONS
TRANSACTION WITH CIBA
Effective January 1, 1995, under a series of agreements between Chiron and
Ciba, including an investment agreement, a cooperation and collaboration
agreement and a governance agreement (collectively "Agreements"), Ciba obtained
a 49.9 percent ownership interest in Chiron common stock (now approximately 47
percent), partially through a tender offer for approximately 38 percent of
Chiron's outstanding common stock for $117 per share. At the same time, Chiron
acquired all of the
22
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
outstanding common stock of CCD and Ciba's interest in Chiron Biocine Company
and Biocine S.p.A. in exchange for 6.6 million newly-issued Chiron common shares
and a cash payment of $23.5 million. Prior to the acquisition, Chiron Biocine
Company and Biocine S.p.A. were joint businesses between Chiron and Ciba with
each having a 50 percent ownership interest. CCD is involved in the manufacture
and sale of diagnostic and immunodiagnostic products. Chiron Biocine Company and
Biocine S.p.A. are involved in the research, development and sale of adult and
pediatric vaccines. These acquisitions of Chiron common stock by Ciba, together
with Ciba's prior holdings of approximately 1.4 million shares, result in the
aforementioned 49.9 percent ownership of the Company's common stock.
Under the terms of the Agreements, Ciba is entitled to name three members to
Chiron's Board of Directors and has limited rights to review and approve certain
Chiron transactions. In connection with the Agreements, Ciba has agreed to
guarantee $425 million of new debt for Chiron and has agreed to provide $250
million (which may be increased up to $300 million subject to certain reductions
in the debt guarantee) through 1999 in support of research at Chiron, and Chiron
has the option of issuing up to $500 million of new equity to Ciba.
The acquisitions of CCD and Ciba's interests in Chiron Biocine Company and
Biocine S.p.A. (the "Acquisitions") were accounted for under the purchase method
of accounting. The purchase price of approximately $433.4 million was allocated
to the acquired assets and assumed liabilities based upon their estimated fair
value on the acquisition date. The fair value of the net assets acquired in the
Acquisitions, including purchased in-process technology, was estimated based on
an independent valuation of the acquired net assets. The aggregate purchase
price of approximately $433.4 million was less than the fair value of the net
assets acquired by approximately $57.3 million. This amount was ratably
allocated as a reduction of the noncurrent assets of the acquired companies. In
connection with the acquisition, liabilities were assumed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired, net of negative goodwill................................. $ 694,895
Common stock issued..................................................................... (407,550)
Cash paid............................................................................... (23,504)
Acquisition costs....................................................................... (2,304)
--------------
Liabilities assumed..................................................................... $ 261,537
--------------
--------------
</TABLE>
As required under generally accepted accounting principles, Chiron
recognized as an expense the amount allocated to purchased in-process technology
resulting in a noncash charge against earnings of $222.9 million. Other
transaction-related charges totaling $49.4 million related to employee payments
and the related taxes, and legal and investment advisor fees were also
recognized as expenses. Ciba agreed to reimburse the Company $24.8 million for a
portion of the employee payments and such reimbursement has been recorded as a
capital contribution. Other purchased intangible assets of approximately $25.6
million consisting of base technology are being amortized over their estimated
useful lives of 10 to 15 years, using the straight-line method.
The operations of CCD, Biocine S.p.A. and Chiron Biocine Company are
included in Chiron's consolidated operating results from January 1, 1995
forward. Chiron's interest in the operating results of Biocine S.p.A. and Chiron
Biocine Company were included in the Company's 1994 and 1993 operating results
under the equity method of accounting.
23
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
During 1995, Chiron and Ciba entered into a limited liability company
agreement to utilize research funding to be provided by Ciba, as discussed
above. Under the terms of the agreement, Ciba will fund from time to time
through December 31, 1999, at Chiron's request, research and development costs
for adult vaccines, pediatric vaccines and insulin-like growth factor-1. Annual
funding amounts are subject to certain limitations. In return, Ciba will receive
an interest in a stream of variable royalties from future worldwide sales of
certain adult vaccines, certain pediatric vaccines and insulin-like growth
factor-1. Royalties will be paid for a minimum period of ten years, subject to
an extension under certain conditions, following the later of October 1, 2001,
or the date of the first commercial sale of individual products covered by the
agreement. In addition, Ciba will also receive an interest in promotional
rights, in countries other than in North America and Europe, for certain adult
vaccines.
Under the terms of the agreement, Chiron was granted an option through
December 31, 2001, to repurchase Ciba's interest, at cost plus an agreed-upon
return. In addition, if Chiron chooses to exercise the option, Ciba will receive
an option to acquire certain exclusive marketing rights, in countries other than
those in North America and Europe, with respect to certain adult vaccines in
countries in which Ciba has exercised its co-promotion rights. Pursuant to the
agreement, Chiron received $27.0 million of funding from Ciba during 1995, which
Chiron recorded as collaborative agreement revenues. Chiron anticipates
receiving substantial additional funding from Ciba in future periods, pursuant
to the terms of the agreement.
ACQUISITION OF IOLAB
On March 31, 1995, Chiron Vision acquired the ophthalmic surgical product
division of IOLAB from Johnson & Johnson for approximately $95.0 million. The
acquisition was accounted for under the purchase method of accounting, and
accordingly, IOLAB's financial results have been included in Chiron's
consolidated results of operations from the date of purchase. The purchase price
was allocated to the acquired assets and assumed liabilities based upon their
estimated fair value on the acquisition date. The fair value of the net assets
acquired, including in-process technology, was estimated based on independent
valuations of the acquired net assets. In connection with the acquisition,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired........................................................... $ 108,768
Cash paid............................................................................... (95,000)
Acquisition costs....................................................................... (1,013)
--------------
Liabilities assumed..................................................................... $ 12,755
--------------
--------------
</TABLE>
The amount allocated to purchased in-process technology of $10.3 million was
charged against earnings in the first quarter of 1995. Other purchased
intangible assets of approximately $46.5 million consisting of base technology,
goodwill, trade name and a customer list are being amortized over their
estimated useful lives of 10 to 15 years using the straight-line method. Also,
the Company recorded additional charges for IOLAB restructuring and
integration-related expenses totaling $16.9 million in 1995 (Note 3).
ACQUISITION OF VIAGENE
On September 29, 1995, Chiron acquired all of the outstanding common stock
of Viagene, not previously owned by the Company, in exchange for approximately
$35.5 million in cash and 916,000
24
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
shares of Chiron common stock. Additionally, on September 29, 1995, unexercised
options to purchase Viagene common stock were converted into options to purchase
approximately 132,000 shares of Chiron common stock. Viagene is a biotechnology
company involved in the discovery, development and commercialization of gene
transfer products for the treatment or prevention of severe viral infections,
cancers and other diseases. Prior to the acquisition, Chiron had an ongoing
collaboration with Viagene in the area of gene therapy and, pursuant to the
collaboration arrangement, held an investment in the outstanding voting stock of
Viagene with a carrying value, net of unrealized gains and a realized loss, of
approximately $14.1 million as of September 29, 1995.
The Viagene acquisition has been accounted for under the purchase method of
accounting. The purchase price of approximately $143.7 million was allocated to
the acquired assets and assumed liabilities based upon their estimated fair
value on the acquisition date. In connection with the acquisition, liabilities
were assumed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of assets acquired........................................................... $ 158,461
Carrying value of original investment in Viagene........................................ (14,130)
Common stock and options issued......................................................... (91,402)
Cash paid............................................................................... (35,500)
Acquisition costs....................................................................... (2,696)
--------------
Liabilities assumed..................................................................... $ 14,733
--------------
--------------
</TABLE>
As required under generally accepted accounting principles, Chiron
recognized as an expense the amount allocated to purchased in-process technology
in the third quarter of 1995. This resulted in a noncash charge against earnings
of $130.3 million. The results of operations of Viagene are included in Chiron's
consolidated operating results from September 29, 1995 forward.
PROFORMA FINANCIAL INFORMATION
The following unaudited pro forma information presents the results of
operations of Chiron, CCD, Biocine S.p.A., Chiron Biocine Company and Viagene
for the years ended December 31, 1995 and 1994, with pro forma adjustments as if
the acquisitions had been consummated as of the beginning of the periods
presented. This pro forma information does not purport to be indicative of what
would have occurred had the acquisitions been made as of those dates or of
results which may occur in the future. The pro forma information does not
include the write-off of purchased in-process technology of $222.9 million or
other transaction-related costs totaling $49.4 million (related to employee
payments and the related taxes, and investment advisor and legal fees) which
were recognized as expense during 1995, relating to the acquisition of CCD,
Biocine S.p.A. and Chiron Biocine Company. Also, the pro forma information does
not include the write-off of purchased in-process technology related to the
Viagene acquisition of $130.3 million.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
------------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Total revenues.............................................................. $ 1,107,958 $ 968,568
Income (loss) before non-recurring charges.................................. (127,212) 17,806
Income (loss) before non-recurring charges per share........................ (3.13) 0.43
</TABLE>
25
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 3 -- RESTRUCTURING AND REORGANIZATION COSTS
During 1995, Chiron recorded $39.1 million in restructuring and
reorganization charges, including $16.9 million arising from the acquisition and
integration of IOLAB (Note 2), representing the expected costs of integrating
the acquired business with Chiron's existing business as well as write-downs of
certain previously capitalized costs. Of the total charge of $39.1 million, $8.0
million is due to a change in plans to expand the Company's Emeryville research
and development facilities, $7.7 million is related to the idling of the
Company's Puerto Rico manufacturing facility and $1.0 million is related to a
scale-back of manufacturing operations at the Company's Amsterdam facility. The
majority of these facility-related charges, as well as $3.7 million of other
facility-related charges, have been paid in 1995. Employee termination costs
related to the Company's restructuring were not significant.
Of the $16.9 million recorded as a result of the acquisition of IOLAB,
approximately $6.7 million related to write-downs of previously capitalized
facility and inventory costs. The remaining $10.2 million consists of $5.5
million of employee termination costs and $4.7 million of lease termination and
other costs. Chiron Vision plans to consolidate its European intraocular lens
manufacturing operations into its facility in Lyon, France, and the North
American manufacturing operations into its facility in Claremont, California.
The related workforce reduction is the result of increased manufacturing
efficiencies as plants are closed, a concentration of research and development
efforts and an elimination of overlap in sales and marketing and general and
administrative areas. The integration process is expected to be substantially
completed by the end of 1997.
The current status of the accrued restructuring charges is summarized below:
<TABLE>
<CAPTION>
AMOUNT
AMOUNT OF UTILIZED AMOUNT TO
TOTAL THROUGH BE UTILIZED
RESTRUCTURING DECEMBER 31, IN FUTURE
CHARGE 1995 PERIODS
------------- ------------ -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Chiron Vision restructuring charges:
Employee-related costs...................................... $ 5,506 $ (3,627) $ 1,879
Facility and lease termination costs........................ 6,242 (2,380) 3,862
Duplicate and excess inventory.............................. 3,476 (1,632) 1,844
Other....................................................... 1,724 (280) 1,444
------------- ------------ -----------
16,948 (7,919) 9,029
Puerto Rico manufacturing facility............................ 7,650 (3,562) 4,088
Postponement of Emeryville facility expansion................. 7,990 (7,990) --
Amsterdam manufacturing facilities............................ 1,000 (1,000) --
Other facility-related........................................ 3,718 (3,718) --
Other......................................................... 1,750 (1,249) 501
------------- ------------ -----------
$ 39,056 $ (25,438) $ 13,618
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
NOTE 4 -- COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS
GENERAL
The Company has entered into a number of collaborative arrangements with
other pharmaceutical and biotechnology companies for the development and
marketing of certain technologies and products. The majority of these
collaborations are in the development or clinical trial phase. Chiron and its
collaborative partners generally contribute certain technologies and research
efforts to the
26
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 4 -- COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS (CONTINUED)
collaboration. In addition, Chiron and its collaborative partners commit,
subject to certain limitations and cancellation clauses, to share in the funding
of the collaborations' ongoing research and clinical trial costs. Chiron, under
certain of the arrangements, has purchased equity securities, including common
and preferred stock and warrants to purchase common and preferred stock, of the
collaborative partner.
DIAGNOSTIC JOINT BUSINESS
In 1989, Chiron entered into an agreement with Ortho 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, 1995 and 1994, $19.6 million and $18.7 million,
respectively, were due from Ortho for profit sharing and reimbursement of costs.
Chiron's 50 percent share of the profits from the joint business was $76.9
million in 1995, of which $1.8 million was a result of the final 1994
accounting. In 1994, Chiron recognized $74.3 million as its share of the
profits, including a negligible adjustment relating to 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.
Revenues recognized under the cost reimbursement portion of the agreement with
Ortho for collaborative research were $9.6 million, $8.5 million, and $9.8
million in 1995, 1994 and 1993, respectively. Revenues recognized under the cost
reimbursement portion of the agreement with Ortho for product sales were $16.1
million, $11.8 million and $11.4 million in 1995, 1994 and 1993, respectively.
CEPHALON, INC. ("CEPHALON")
In January 1994, Chiron and Cephalon established a collaboration for the
research, development and marketing of certain 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. Each party was responsible for its own collaboration-related expenses,
subject to certain conditions, until total collaboration-related expenses are
equalized or until the products reach commercialization. Chiron invested $15.0
million in equity securities of Cephalon in 1994. The cumulative expenses
incurred by Chiron and Cephalon were equalized during the third quarter of 1995,
and thereafter, all expenses are to be shared equally. Research and development
expenses recognized by Chiron related to this agreement for the years ended
December 31, 1995 and 1994, were $25.3 million and $5.4 million, respectively.
DEPOTECH CORPORATION ("DEPOTECH")
In March 1994, Chiron entered into an agreement with DepoTech for the
research, development and marketing of certain 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 marketing rights to the resulting
commercial products. In addition, the parties
27
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 4 -- COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS (CONTINUED)
agreed to share in the revenues of any resulting commercial products. During
1994, Chiron invested $3.5 million in equity securities of DepoTech. In 1995,
DepoTech reached the first milestone, and accordingly, 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 for the year ended December
31, 1995.
G.D. SEARLE & CO. ("SEARLE")
In October 1994, Chiron entered into a collaboration agreement with Searle
for the research, development and marketing of Tissue Factor Pathway Inhibitor.
Under the terms of the agreement, Chiron made a $3.5 million payment to Searle,
which was expensed in 1994. Except for this payment, each party agreed to fund
its own collaboration-related expenses through 1994. In 1995, in addition to
funding its equal share of continuing development expenses, Chiron exercised its
option to accelerate the funding of certain development expenses of Searle in
exchange for a right of first negotiation to manufacture certain clinical
supplies. Accordingly, Chiron paid $8.8 million to Searle in 1995 which was
recorded as research and development expense. Future development expenses will
be shared equally by the parties.
PROGENITOR, INC. ("PROGENITOR")
In March 1995, the Company reached an agreement with Progenitor, a
subsidiary of Interneuron Pharmaceuticals, Inc., to collaborate in the
development and commercialization of therapeutic and vaccine products
incorporating Progenitor's proprietary gene therapy technology. Under the
agreement, Chiron received a license to Progenitor's nonviral gene expression
system for use in the development of products for the treatment of certain
cancers and cardiovascular disorders, development of infectious disease vaccines
and for development of certain other gene therapy products. Chiron will have the
right to manufacture and market any resulting products of the collaboration. In
return for the license and other rights, Chiron made an initial license payment
of $2.5 million to Progenitor, which was recorded as research and development
expense in 1995. Under the agreement, Chiron is required to make certain
additional license and milestone payments to Progenitor. In addition, Progenitor
will receive a royalty from any commercial sales of products resulting from the
collaboration.
GENELABS TECHNOLOGIES, INC. ("GENELABS")
In March 1995, the Company reached an agreement with Genelabs, whereby
Chiron and Genelabs cross-licensed certain rights to hepatitis C virus ("HCV");
hepatitis G virus ("HGV"), a hepatitis virus discovered by Genelabs; human
T-cell leukemia virus -- I ("HTLV-I") and human T-cell leukemia virus -- II
("HTLV-II") diagnostic tests. Under the agreement, Chiron acquired certain
rights to develop and market diagnostic products for the detection of HGV,
HTLV-I and HTLV-II. In return, Genelabs acquired development and marketing
rights in Asia, except Japan, for certain products incorporating Chiron's HCV
technology. Ortho, Chiron's joint diagnostic business partner, agreed to
participate as Chiron's equal partner in the collaboration with Genelabs and
therefore will share equally in all payments under the agreement, including
equity investments. Chiron and Ortho agreed to pay $5.0 million in up front
license fees and up to $9.0 million in HGV development milestones. Chiron and
Ortho also agreed to invest a total of $10.0 million in equity securities of
Genelabs. Also, under the terms of the agreement, Chiron and Ortho have the
option to acquire substantially all of the diagnostics business of Genelabs in
the year 2000 through the conversion of the $10.0 million equity investment for
approximately one-half of the business and an additional payment equal to the
then
28
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 4 -- COLLABORATIONS AND JOINT BUSINESS ARRANGEMENTS (CONTINUED)
fair market value of the remaining half. Under a separate agreement, Chiron
agreed to pay Genelabs $1.0 million in cash in exchange for a right of first
refusal to obtain an exclusive license to Genelabs' HGV technology for use in
vaccines. Chiron paid Genelabs a total of $8.5 million during 1995 pursuant to
the terms of these agreements. Of this total, $2.1 million was recorded as an
investment in securities of Genelabs and $6.4 million was recorded as research
and development expense.
NEW YORK UNIVERSITY ("NYU")
In March 1995, the Company reached an agreement with NYU for the license of
optical mapping technology for use by Chiron and its sublicensee, Ciba, in
development of diagnostics, therapeutics and vaccines, and Chiron also acquired
the right to commercialize a potential optical mapping instrument. Under the
terms of the agreement, Chiron made a $5.0 million initial payment to NYU, which
was recorded as research and development expense in 1995, for the license and
for funding certain research facilities at NYU. If Chiron and NYU both agree to
continue development of the instrument, Chiron will be obligated to make
milestone payments totaling $4.0 million to NYU and will make royalty payments
to NYU based upon any future product sales of the instrument, subject to certain
minimum royalties. In addition, Ciba has agreed to make certain further research
payments to NYU in connection with development of the instrument in exchange for
the sublicense and in exchange for royalty payments by Chiron to Ciba based upon
sales of the instrument.
CIBA
In November 1995, Chiron and Ciba entered into a collaboration agreement
through which Ciba acquired a non-exclusive, perpetual license to broadly apply
Chiron's combinatorial chemistry technologies in Ciba's research programs. In
addition, Chiron and Ciba agreed to collaborate on the identification of new
drug candidates for specific disease targets. In exchange for these rights, Ciba
agreed to pay certain license, milestone and royalty payments to Chiron.
Under the terms of the agreement, Ciba will pay $26.0 million to Chiron,
over a five-year period and subject to certain adjustments, in exchange for the
non-exclusive, perpetual license to utilize Chiron's combinatorial chemistry
techniques. In the fourth quarter of 1995, Chiron received a $5.5 million
payment from Ciba pursuant to the agreement which was recorded as collaborative
research agreement revenues from related parties.
In addition, Ciba agreed to make certain payments to Chiron in exchange for
access to Chiron's technology, chemical libraries and exclusive rights relating
to specific drug discovery targets. Ciba was also granted the right to develop
and market products resulting from the drug discovery targets in exchange for
certain milestone and royalty payments to Chiron. Chiron was granted
commercialization rights to products developed for non-competing indications,
subject to the payment of royalties to Ciba. Ciba also agreed to fund Chiron's
activities relating to the collaboration for a period of three years, extendible
to five years at Ciba's option.
NOTE 5 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
MARKETABLE SECURITIES
In accordance with the requirements of SFAS 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 unrealized gains and losses,
deemed by the Company as temporary in nature, reported as a separate component
of stockholders' equity.
29
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 5 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
At December 31, available-for-sale securities consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------- -----------------------------------------------
ADJUSTED UNREALIZED UNREALIZED FAIR ADJUSTED UNREALIZED UNREALIZED
COST GAINS LOSSES VALUE COST GAINS LOSSES FAIR VALUE
--------- ----------- ----------- --------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Government
securities................. $ 69,659 $ 298 $ (125) $ 69,832 $ 126,971 $ 137 $ (3,124) $ 123,984
Mortgage-backed
securities................. 11,317 17 (43) 11,291 2,029 -- (710) 1,319
Corporate debt securities... 130,150 128 (213) 130,065 269,559 302 (3,663) 266,198
--------- ----------- ----------- --------- --------- ----------- ---------- -----------
211,126 443 (381) 211,188 398,559 439 (7,497) 391,501
Marketable equity
securities................. 9,100 31,200 -- 40,300 20,729 -- (5,632) 15,097
--------- ----------- ----------- --------- --------- ----------- ---------- -----------
$ 220,226 $ 31,643 $ (381) $ 251,488 $ 419,288 $ 439 $ (13,129) $ 406,598
--------- ----------- ----------- --------- --------- ----------- ---------- -----------
--------- ----------- ----------- --------- --------- ----------- ---------- -----------
</TABLE>
At December 31, these securities were classified in the Consolidated Balance
Sheet as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Cash equivalents.............................................................. $ 61,289 $ 82,554
Short-term investments in marketable debt securities.......................... 61,066 137,619
Noncurrent investments in marketable debt securities.......................... 88,833 171,328
Investments in equity securities and affiliated companies..................... 40,300 15,097
----------- -----------
$ 251,488 $ 406,598
----------- -----------
----------- -----------
</TABLE>
The cost and estimated fair value of available-for-sale debt securities as
of December 31, 1995, by contractual maturity, consisted of the following:
<TABLE>
<CAPTION>
ADJUSTED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Due in one year or less....................................................... $ 122,418 $ 122,355
Due in one to three years..................................................... 77,391 77,542
Due thereafter................................................................ -- --
----------- -----------
199,809 199,897
Mortgage-backed securities.................................................... 11,317 11,291
----------- -----------
$ 211,126 $ 211,188
----------- -----------
----------- -----------
</TABLE>
The proceeds received during 1995 and 1994 from the sale and maturity of
securities held as available-for-sale were $334.1 million and $232.9 million,
respectively. During 1995, the gross realized gains and gross realized losses on
sales of securities held as available-for-sale were $0.4 million and $3.5
million, respectively. Gross realized gains and losses during 1994 were not
significant. The cost of securities sold was based on the specific
identification method. The change in the net unrealized holding gain (loss) on
available-for-sale securities, included as a separate component of stockholders'
equity for 1995 and 1994, was $44.0 million and $(12.7) million, respectively.
30
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 5 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
other than those accounted for in accordance with SFAS 115 at December 31, are
as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
CARRYING/ CARRYING/
NOTIONAL NOTIONAL
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Nonmarketable equity investments (accounted for
under the cost method)............................. $ 9,209 $ 9,209 $ 10,365 $ 10,365
Notes receivable.................................... 3,519 3,073 17,646 16,892
Deposits............................................ 4,643 4,509 754 754
Long-term debt:
Convertible subordinated debentures............... 312,467 360,677 305,494 259,247
Notes payable..................................... 64,755 64,741 6,306 6,306
Foreign currency hedging contracts (off-balance
sheet financial instruments)....................... 65,106 65,188 12,866 12,885
</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, 1995 and 1994, of
$4.9 million and $26.0 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 values of the notes receivable and the notes payable are based on
the discounted value of expected future cash flows. The fair value of deposits
is based on the discounted value of expected future cash flows using current
rates for assets with similar maturities. The fair value of convertible
subordinated debentures is based on the market price at the close of business on
December 31, 1995 and 1994.
The fair value of foreign currency hedging contracts is based on the
exchange rate in effect on the last business day of the year. The notional
amount approximates the fair value as the majority of the contracts were entered
into shortly before year-end.
31
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 6 -- DEBT OBLIGATIONS AND CAPITAL LEASES
At December 31, 1995 and 1994, long-term debt and capital lease obligations
consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
1.9 percent convertible subordinated debentures............................... $ 225,215 $ 220,076
5.25 percent convertible subordinated debentures.............................. 87,252 85,418
Capital lease obligations..................................................... 38,940 29,722
Note payable to Ciba.......................................................... 54,016 --
Other notes payable........................................................... 14,765 6,306
----------- -----------
420,188 341,522
Less current portion.......................................................... 6,940 3,461
----------- -----------
$ 413,248 $ 338,061
----------- -----------
----------- -----------
</TABLE>
In 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 2000. Interest is paid semi-annually. 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.
Debentures with a carrying value of $8.9 million and $8.7 million were held by
Ciba at December 31, 1995 and 1994, respectively.
Cetus Oncology Corporation's ("Cetus") 5.25 percent convertible subordinated
debentures are due in 2002, have a face value of $100.0 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.
Capital lease obligations consist primarily of one lease bearing an interest
rate of 10.5 percent and maturing in 2004. The gross amount of land, buildings
and equipment leased under noncancelable capital leases totaled $23.8 million
and $14.1 million and accumulated depreciation totaled $5.2 million and $4.0
million at December 31, 1995 and 1994, respectively. Future payments under
capital lease obligations (including interest of approximately $35.0 million)
are as follows: 1996 -- $5.3 million, 1997 -- $5.7 million, 1998 -- $5.0
million, 1999 -- $4.0 million, 2000 -- $3.7 million and $50.2 million
thereafter.
The note payable to Ciba for approximately $54.0 million was assumed by the
Company as part of the acquisition of CCD. The note bears interest at a variable
rate based on LIBOR (approximately 5.8 percent at December 31, 1995) and is due
in 2000 together with accrued interest.
32
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 6 -- DEBT OBLIGATIONS AND CAPITAL LEASES (CONTINUED)
At December 31, 1995, the Company had various notes payable with an average
interest rate of 6.7 percent and maturities ranging from 1996 through 2014.
Maturities of notes payable for years 1996 through 2000 are as follows: 1996 --
$4.7 million, 1997 -- $1.6 million, 1998 -- $1.6 million, 1999 -- $1.7 million,
2000 -- $1.8 million and $3.4 million thereafter.
Short-term borrowings totaled $50.0 million as of December 31, 1995. As part
of the acquisition of CCD, borrowings under revolving foreign line of credit
arrangements were assumed by the Company totaling approximately $39.8 million,
bearing interest at rates which average approximately 2.2 percent at December
31, 1995. During 1995, the Company entered into a revolving, unsecured line of
credit arrangement with an international bank under which the Company may borrow
up to $50.0 million. This credit facility is guaranteed by Ciba and bears
interest at a rate based on LIBOR (approximately 5.8 percent on the $1.0 million
outstanding at December 31, 1995). The remaining portion of short-term
borrowings consists primarily of foreign lines of credit and overdraft
facilities maintained for Biocine S.p.A. These borrowings totaled approximately
$4.8 million at December 31, 1995, and bear interest at an average rate of 5.5
percent. Unused lines of credit or commitments with banks totaled approximately
$122.6 million at December 31, 1995.
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
LEASES
Chiron leases laboratory, office and manufacturing facilities, land and
equipment under noncancelable operating leases which expire at various times
through 2037. Rent expense was $28.0 million in 1995, $12.7 million in 1994, and
$9.0 million in 1993.
Future minimum lease payments under these leases are as follows: 1996 --
$25.7 million, 1997 -- $21.2 million, 1998 -- $17.1 million, 1999 -- $13.1
million, 2000 -- $10.8 million and $25.2 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
addition, the former partners of CHLP are entitled to payments on net sales,
royalties or other fees received by Chiron for certain products.
In December 1990, Cetus exercised its purchase options to acquire all the
limited partners' interest in Cetus Healthcare Limited Partnership 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).
33
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 7 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER COMMITMENTS
In connection with the expansion of its manufacturing capabilities, the
Company had various commitments under construction contracts totaling
approximately $14.8 million at December 31, 1995. The Company also had
performance bonds outstanding in the amount of $6.9 million as of December 31,
1995, primarily in connection with sales to public health authorities.
NOTE 8 -- STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
In December 1991, Chiron adopted a stock option plan ("1991 Plan") to
replace and supersede the 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 4.5 million 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 1995, this increase in shares available for grant was 627,268.
At December 31, 1995, a total of 2,075,368 shares were available for grant under
the 1991 Plan.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding options at January 1,.......................... 4,946,884 4,342,618 4,207,545
Granted.................................................. 2,626,904 1,166,982 1,175,834
Forfeited................................................ (301,834) (168,834) (198,721)
Surrendered against payment by Ciba...................... (767,740) -- --
Exercised................................................ (669,801) (393,882) (842,040)
------------- ------------- -------------
Outstanding options at December 31,........................ 5,834,413 4,946,884 4,342,618
------------- ------------- -------------
Exercisable options at December 31,........................ 2,214,947 2,566,805 1,972,065
Average exercise price of outstanding options at December
31,....................................................... $ 59.03 $ 51.28 $ 45.03
Average exercise price of options exercised during
the year.................................................. $ 42.42 $ 32.80 $ 26.22
Average exercise price of options granted during
the year.................................................. $ 65.32 $ 70.67 $ 61.93
</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 954,118 shares were available for purchase at
December 31, 1995. At the end of each quarter, funds
34
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 8 -- STOCKHOLDERS' EQUITY (CONTINUED)
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 172,665 in 1995, 157,891 in 1994 and 121,840 in 1993.
COMMON STOCK WARRANTS
As a result of the acquisition of Cetus, the following warrants to purchase
Chiron common stock are outstanding at December 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE EXPIRATION DATE
- ------------- --------- -----------------------
<S> <C> <C>
291,938 $ 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.
NOTE 9 -- INCOME TAXES
COMPONENTS OF PRE-TAX EARNINGS
For financial reporting purposes, "Income (loss) before income taxes"
includes the following components for the years ended December 31,:
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
United States..................................................... $ (492,842) $ 36,829 $ 33,331
Foreign........................................................... 2,068 (4,832) (10,244)
------------ --------- ----------
$ (490,774) $ 31,997 $ 23,087
------------ --------- ----------
------------ --------- ----------
</TABLE>
35
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 9 -- INCOME TAXES (CONTINUED)
COMPONENTS OF PROVISION FOR INCOME TAXES
Significant components of the provision for income taxes are as follows for
the years ended December 31,:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal........................................................ $ -- $ 10,741 $ (290)
State.......................................................... 1,807 2,227 (144)
Foreign........................................................ 9,901 266 457
------------ ---------- ----------
11,708 13,234 23
Deferred:
Federal........................................................ -- -- 1,113
State.......................................................... -- -- --
Foreign........................................................ 1,260 -- --
------------ ---------- ----------
1,260 -- 1,113
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........................... 8,721 438 3,567
------------ ---------- ----------
Total provision.................................................. $ 21,689 $ 13,672 $ 4,703
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The tax benefit related to tax deductions for the Company's stock option
plans is recorded as an increase to paid-in capital when realized. Tax benefits
of approximately $0.9 million in 1995, $9.9 million in 1994 and none in 1993
were realized.
36
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1995
NOTE 9 -- INCOME TAXES (CONTINUED)
RATE RECONCILIATION
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>
1995 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal tax provision (benefit) at statutory rates................. $ (171,771) $ 11,199 $ 8,080
Tax effect of write-off of purchased in-process
technology........................................................ 127,850 -- --
State taxes, net of federal benefit................................ 4,895 2,300 (144)
Foreign income taxes............................................... 16,794 266 457
Losses of foreign subsidiaries not providing benefit in current
year.............................................................. (724) 2,247 4,020
Amortization of intangible assets.................................. 696 927 1,006
Effect of net operating loss carryforward.......................... 31,691 -- (6,569)
Nontaxable earnings of joint business.............................. -- (2,547) --
Nondeductible expenses related to Ciba transaction................. 9,308 875 --
Utilization of deferred tax assets not previously
benefited......................................................... -- (2,246) (2,549)
Other.............................................................. 2,950 651 402
------------ --------- ---------
Provision for income taxes......................................... $ 21,689 $ 13,672 $ 4,703
------------ --------- ---------
------------ --------- ---------
</TABLE>
37
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 9 -- INCOME TAXES (CONTINUED)
SUMMARY OF DEFERRED 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,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Deferred income tax liabilities:
Basis differences -- purchase accounting.................................. $ 19,537 $ 10,214
Patent costs expensed for tax purposes.................................... 7,205 5,981
Other..................................................................... 5,036 --
------------ ------------
31,778 16,195
Deferred income tax assets:
Basis differences -- purchase accounting and intangibles.................. 89,074 93,328
Depreciation and purchased technologies................................... 22,345 8,155
Reserves and expense accruals............................................. 43,458 16,063
Net operating loss carryovers............................................. 128,681 22,659
Business credit carryforwards............................................. 26,162 10,182
Other..................................................................... 12,498 13,518
------------ ------------
322,218 163,905
Less valuation allowance.................................................. (286,757) (147,710)
------------ ------------
35,461 16,195
------------ ------------
Net deferred income tax asset............................................... $ 3,683 $ --
------------ ------------
------------ ------------
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1995 and 1994, was an increase of $139.0 million and a decrease of $13.9
million, respectively.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1995, will be allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Income tax benefit...................................................................... $ 209,192
Goodwill and other noncurrent intangible assets......................................... 38,809
Additional paid-in capital.............................................................. 38,756
--------------
$ 286,757
--------------
--------------
</TABLE>
38
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 9 -- INCOME TAXES (CONTINUED)
TAX OPERATING LOSS AND CREDIT CARRYFORWARDS
The following presents the carryforwards as of December 31, 1995 which are
available to offset future income tax liabilities:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Federal net operating loss carryforwards expiring from 2002 through 2010................ $ 237,181
State net operating loss carryforwards expiring from 1996 through 2010.................. 115,398
Foreign net operating loss carryforwards principally carried forward indefinitely....... 104,797
Federal tax credit carryforwards expiring from 1997 through 2009........................ 16,717
State tax credit carryforwards expiring from 1997 through 2010.......................... 9,445
</TABLE>
NOTE 10 -- OTHER INCOME (EXPENSE), NET
Other income (expense), net, for each of the three years ended December 31,
consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Interest and dividend income....................................... $ 22,301 $ 20,343 $ 16,154
Capitalized interest............................................... 420 4,405 1,857
Interest expense and related costs on convertible debentures....... (17,827) (16,782) (8,861)
Write-downs of investments......................................... -- (11,607) --
Other interest expense............................................. (12,535) (3,404) (3,366)
Net realized gain (loss) on sale of debt securities................ (3,037) (2,234) 1,276
Realized/unrealized gain (loss) on foreign exchange transactions... (193) 156 (405)
Other.............................................................. 2,525 (1,280) 1,294
---------- ---------- ---------
$ (8,346) $ (10,403) $ 7,949
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
NOTE 11 -- GEOGRAPHIC AREA INFORMATION
Chiron operates in the global healthcare industry in four major markets:
diagnostics, ophthalmics, vaccines and therapeutics. The Company is a
multinational corporation with operations in many countries including the United
States, Canada, France, Germany, the United Kingdom, Italy, The Netherlands and
Australia. Transfers between geographic areas represent intercompany sales and
are accounted for based on established sales prices between related companies.
In computing earnings from operations for foreign subsidiaries, no allocations
of general corporate expenses or interest have been made. Identifiable assets of
foreign geographic areas relate to the operating assets of the Company's
subsidiaries in those countries. Domestic assets consist of all operating assets
of the Company located within the United States.
Results of foreign operations for 1995 consist of ophthalmic and oncology
sales in addition to sales of vaccines and diagnostic products. Results of
foreign operations for 1994 and 1993 consist primarily of ophthalmic and
oncology product sales.
39
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 11 -- GEOGRAPHIC AREA INFORMATION (CONTINUED)
Information about the Company's operations in different geographic areas for
the three years ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
DOMESTIC EUROPE ASIA/PACIFIC OTHER ELIMINATIONS CONSOLIDATED
------------- ----------- ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
1995:
Sales to unaffiliated
customers............ $ 592,524 $ 348,392 $ 136,668 $ 22,998 $ -- $ 1,100,582
Transfers between
geographic areas..... 178,084 46,819 586 -- (225,489) --
------------- ----------- ----------- --------- ------------ -------------
Total revenue......... 770,608 395,211 137,254 22,998 (225,489) 1,100,582
Net loss.............. (453,524) (37,234) (1,222) (4,898) (15,585) (512,463)
Identifiable assets... 1,901,145 292,628 87,684 12,272 (803,531) 1,490,198
1994:
Sales to unaffiliated
customers............ $ 379,917 $ 65,569 $ 5,322 $ 3,171 $ -- $ 453,979
Transfers between
geographic areas..... 22,919 1,108 1,370 -- (25,397) --
------------- ----------- ----------- --------- ------------ -------------
Total revenue......... 402,836 66,677 6,692 3,171 (25,397) 453,979
Net income (loss)..... 25,356 (3,456) (732) (1,327) (1,516) 18,325
Identifiable assets... 1,091,648 62,034 1,345 (1,017) (104,268) 1,049,742
1993:
Sales to unaffiliated
customers............ $ 266,671 $ 40,829 $ 4,932 $ 5,103 $ -- $ 317,535
Transfers between
geographic areas..... 22,917 11,585 1,189 -- (35,691) --
------------- ----------- ----------- --------- ------------ -------------
Total revenue......... 289,588 52,414 6,121 5,103 (35,691) 317,535
Net income (loss)..... 29,114 (12,410) (130) 144 1,666 18,384
Identifiable assets... 1,038,047 17,604 2,043 1,006 (90,103) 968,597
</TABLE>
Revenues by customer location, including both local revenues and exports
from other locations, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
------------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
North America.................................................. $ 502,090 $ 344,569 $ 233,940
Europe......................................................... 367,521 86,804 66,286
Asia and Pacific Basin......................................... 169,367 17,982 15,810
South America, Africa and Other................................ 61,604 4,624 1,499
------------- ----------- -----------
$ 1,100,582 $ 453,979 $ 317,535
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
40
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 12 -- LEGAL PROCEEDINGS
The Company is involved in litigation in the ordinary course of its
business. While the ultimate 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.
ABBOTT LABORATORIES. On December 13, 1993, Chiron filed a patent
infringement action against 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 ("the '949 patent"), 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 were filed. After argument,
the Court granted portions of Chiron's motion but denied Abbott's motion for
summary judgment. Subsequently, the United States Patent & Trademark Office
declared an interference between the '949 patent and an application owned by
Centocor and the U.S. government. Chiron is the junior party. The Court refused
Abbott's request to stay the litigation pending resolution of the interference
and has scheduled a trial for April 7, 1996.
On April 26, 1994, Abbott filed suit against Chiron in the United States
District Court for the Northern District of Illinois, Eastern Division, alleging
that the Company has, by making, using and selling nucleic acid hybridization
assays, infringed three U.S. patents owned by third parties and licensed to
Abbott. Abbott is seeking injunctive relief and damages in an unspecified
amount. The Company believes that it has substantial defenses and is defending
this suit vigorously. Trial is currently scheduled for July 15, 1996.
ALLERGAN MEDICAL OPTICS. 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 Intra-
Optics (now Chiron Vision) (together, "Chiron"). The complaint alleged that a
mechanical inserter used to place the Chiron foldable intraocular lens in the
eye during cataract surgery infringes a patent licensed exclusively to Allergan.
Allergan sought an injunction against sales of the inserter, damages in an
unspecified amount, and attorneys' fees. On November 27, 1995, Chiron Vision and
Allergan reached a settlement in the lawsuit. Chiron signed a Final Consent
Judgment in exchange for a license to the subject patent.
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 has
engaged in unfair competition and unfair business practices in asserting its
patent rights. Advanced ChemTech is asking the Court to: (1) find that the
patent at issue is invalid and unenforceable; (2) find that Advanced ChemTech
does not infringe the patents; and (3) award 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.
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
41
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 12 -- LEGAL PROCEEDINGS (CONTINUED)
States government. Subsequently, Bradley dismissed the United States as a
defendant. Bradley, who collaborated with Chiron scientists on research that led
to the discovery of HCV, alleges he had been wrongly excluded as an inventor of
HCV. He requests various forms of relief, including declarations that he is an
inventor of Chiron's patents related to HCV and that these patents are
unenforceable. Bradley further seeks monetary damages and a constructive trust
on all past and future profits derived from Chiron's HCV invention, which are
estimated by Bradley to be in excess of $1 billion, as well as penalties under
federal and state Racketeering and Corrupt Organization (RICO) statutes. Chiron
believes Bradley's claims to inventorship and his suit are without merit and
that substantial defenses exist. In 1990, Bradley and the CDC entered into a
settlement agreement regarding their respective claims of inventorship under
which any rights either might have were assigned to Chiron. Chiron believes that
the settlement agreement is valid and bars substantially all of the claims in
the subject litigation. Chiron and the other defendants filed a motion to
dismiss Bradley's First Amended Complaint. The Court dismissed Bradley's
complaint for failure to state a claim upon which relief can be granted, but
allowed Bradley to file an amended complaint. Chiron has filed a motion to
dismiss Bradley's Second Amended Complaint.
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 its wholly-owned subsidiary, Cetus Oncology Corporation, claiming that the
defendants infringed certain United States patents relating to plasmids for the
expression of DNA Polymerase I and to plasmids providing for nick-translation
activity. 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.
Venue of the case was changed to the Northern District of California on motion
by Chiron. Discovery is ongoing. The facts of the case, including potential
indemnification rights or obligations among the defendants, are currently under
review. However, Chiron believes that it and Cetus have significant defenses.
EVANS. On November 8, 1995, the Tribunal of Brescia, an Italian Court,
dismissed a lawsuit brought by Evans Medical Limited (a division of Medeva plc)
("Evans") against Chiron's Italian vaccine business, Biocine S.p.A., and against
Nuova Chimica Medica s.r.l., a distributor. Evans sought injunctive relief via
an emergency procedure. The suit alleged that the p69 antigen used in Biocine
S.p.A.'s recombinant acellular pertussis vaccines
(Acelluvax-Registered Trademark- and Acelluvax-Registered Trademark- DTP)
infringed Evans' Italian counterpart to its European patent No. 162,639 ("the
'639 patent"). This patent is licensed by Evans exclusively to SmithKline
Beecham Biologicals S.A. Counterpart patents are pending or have been issued in
other jurisdictions, including the United States. Earlier in the year, Evans had
brought a similar proceeding against Biocine S.p.A. and its distributor for
emergency injunctive relief in the same Court. Following a June 26, 1995
hearing, Evans abandoned that proceeding.
Biocine S.p.A. previously had opposed issuance of the '639 patent before the
European Patent Office ("EPO") and has appealed the finding reached by the EPO
in that opposition proceeding. Biocine S.p.A. filed an action against Evans in
Milan on October 23, 1995 alleging invalidity of the same patent that formed the
basis for the two Italian suits discussed above. Biocine S.p.A. later filed a
claim against Evans for non-infringement with the Milan Court. Evans' response
to the Milan actions
42
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 12 -- LEGAL PROCEEDINGS (CONTINUED)
was filed in February 1996. Also in February 1996, Biocine S.p.A. filed an
action alleging invalidity and non-infringement of Evans' Dutch equivalent to
the '639 patent in The Netherlands. Chiron believes that it does not infringe
any valid claim in the '639 patent or in its foreign counterparts.
MUREX DIAGNOSTICS, LTD. In a series of actions, the first of which was
brought on March 2, 1992, Chiron, together with Ortho and Ortho Diagnostic
Systems, Ltd. (collectively, "Ortho"), filed suit in the High Court for England
and Wales against Murex Diagnostics, Ltd. ("Murex"), alleging infringement of
Chiron's U.K. Patent No. 2,212,511 ("the '511 patent") as a result of Murex's
manufacture and sale of HCV immunoassay kits in the U.K. Murex is a subsidiary
of International Murex Technologies Corp., a Canadian company. Chiron and Ortho
sought injunctive relief and unspecified damages. On May 27, 1994, the High
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. Both
Murex and the Chiron/Ortho parties appealed various aspects of the High Court's
judgment. Chiron's and Ortho's request for an injunction was granted on November
30, 1994. Following an interim damages inquiry which was held in February 1996,
the Court ordered Murex to pay L6 million (approximately $9 million) to
Chiron/Ortho by February 23, 1996. On February 22, 1996, Murex, which had
changed its name to Specialist Diagnostics, Ltd., filed a petition for voluntary
liquidation. There can be no assurance when or whether Chiron and Ortho will be
able to collect this damage award. A damages inquiry is scheduled for July 1996.
In a series of rulings on November 2 and 7, 1995, the U.K. Court of Appeal
held that, with the exception of one claim, the '511 patent is valid and that
Chiron could amend the patent and proceed with the damages inquiry. The parties
have applied for leave to appeal to the House of Lords.
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 also have been filed by Chiron and Ortho in
Germany, Italy, The Netherlands and Belgium. On January 23, 1995, Chiron and
Ortho were granted an injunction in Germany. On May 8, 1995, Chiron was granted
a cross-border preliminary injunction by the Dutch Court preventing infringement
by Murex and certain of its affiliates covering The Netherlands, Belgium,
France, Spain and Luxembourg. Murex has brought an action in Australia seeking
revocation of the Australian counterpart of the '511 patent. Chiron has
counterclaimed for infringement. That matter is scheduled for trial in June of
1996.
ORGANON TEKNIKA, LTD. On May 4, 1994, Chiron instituted summary legal
proceedings against Organon Teknika, B.V., Akzo Pharma, B.V., subsidiaries of
Akzo 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 appealed the injunction. The '216 patent
is a counterpart of the British '511 patent. Infringement proceedings brought by
Chiron and Ortho were also pending against
43
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 12 -- LEGAL PROCEEDINGS (CONTINUED)
Organon in Italy and Belgium (based on the '216 patent), and consolidated with
the actions against Murex, described above. Chiron, Ortho, and Organon settled
all European HCV litigation on October 9, 1995, and Chiron and Ortho were
compensated for past infringement. UBI did not participate in the settlement,
and has been ordered to pay Ortho Ltd. damages by the U.K. Court of Appeal,
along with Murex, as described above. A damages inquiry has not yet been
scheduled.
SICOR. In April 1991, Alco Chemicals, Ltd. ("Alco") and Sicor, S.p.A.
("Sicor"), former suppliers of bulk doxorubicin to Cetus Ben Venue Therapeutics
("CBVT"), 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. Plaintiffs claim that they had distribution and supply agreements
with CBVT relative to a product called doxorubicin hydrochloride. Sicor had been
prevented from manufacturing product for CBVT since September 1990. In March
1991, CBVT entered into an agreement with Erbamont which provided for, among
other things, the settlement of several legal proceedings then pending relating
to Erbamont's alleged doxorubicin proprietary rights, and the exclusive supply
of doxorubicin to CBVT by Erbamont. The Sicor complaint alleges breach of the
CBVT contract to purchase bulk doxorubicin from Sicor, as well as antitrust
violations and interference with contract and prospective advantage, and sought
unspecified damages. Plaintiffs assert in separate counts against all of the
Cetus parties that their contracts with CBVT have been breached, that inducement
of such breaches has been tortious, that plaintiffs' prospective economic
relations have been tortiously frustrated, that the Cetus parties are indebted
to plaintiffs on past accounts said to relate to the joint financing of earlier
litigation, and that plaintiffs' distribution and supply of doxorubicin has been
foreclosed by reason of violations of the federal antitrust laws. 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. Sicor's antitrust claims have been dismissed on
motion and Sicor has dismissed its claims against Erbamont. Sicor filed a
summary judgment motion with respect to the counterclaims of the Cetus parties.
On February 2, 1996, the District Court granted that motion in an opinion which
the Company is currently studying. The Company believes it has substantial
defenses to the Sicor claims. A related arbitration before the International
Chamber of Commerce in New York brought by Sicor against Chiron, Cetus, and Ben
Venue has been stayed pending the resolution of the Cetus parties' counterclaims
in the litigation described above.
In February 1995, Sicor and Alco filed a further action in the United States
District Court for the Northern District of California against CBVT for amounts
allegedly owed by CBVT to Sicor and Alco for the supply of doxorubicin, plus
interest and attorneys' fees. This case has been assigned to the same judge as
the above-referenced District Court case. The Company believes that it has
significant defenses to these claims.
SCRIPPS CLINIC. 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 plaintiffs' 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. Appeal Nos. 89-1541, -1542, -1543, -1646 and -1647 were filed in the
United States Court of Appeals for the Federal Circuit. The Appellate Court
reversed the trial court, finding that summary judgment
44
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 12 -- LEGAL PROCEEDINGS (CONTINUED)
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 been set and it is unclear when a date
will be set. Chiron intends to vigorously assert its defenses at trial.
SUMMIT. On September 29, 1994, Summit Technology Ireland B.V., a subsidiary
of Summit Technology, Inc., a manufacturer of ophthalmic lasers, filed a patent
infringement action in the Regional Court of Dusseldorf, Germany, against two
German subsidiaries of Chiron Vision (Chiron Technolas and Chiron Adatomed), and
their respective managing directors. The suit alleged that the manufacture and
sale in Germany of the Technolas-Registered Trademark-
Keracor-Registered Trademark- '116 excimer laser infringed the German
counterpart of a European patent held by Summit. Summit sought injunctive relief
and damages which it estimated at Deutsche mark 2 million. On August 3, 1995,
the German Court granted judgment in favor of Summit, granted an injunction
against defendants' further infringement and awarded damages for past
infringement in an amount to be determined. On September 1, 1995, Summit
enforced the judgment and the injunction by posting security in the amount of
Deutsche mark 2 million. The Company's appeal of the Regional Court's decision
is pending. Chiron Technolas, Chiron Vision's sole source of ophthalmic lasers,
continues to manufacture ophthalmic excimer lasers, which are distributed by
Chiron Vision and its subsidiaries. The Company believes these activities are
outside the scope of the judgment and injunction of the German Regional Court.
The Company has also initiated a separate judicial action in Germany seeking to
invalidate Summit's patent.
AMERICAN HOME PRODUCTS. On April 27, 1995, American Home Products
Corporation ("AHP") filed suit against Chiron in the Superior Court in New
Castle County, Delaware, claiming compensatory, consequential and punitive
damages based on an alleged breach and repudiation by Chiron of a contract
pursuant to which Chiron had agreed to purchase certain assets from AHP. The
case has been settled and was ordered dismissed on December 2, 1995.
BRILLIANT TRADING CO., WOLFSON. Following the announcement by Chiron of the
signing of a definitive agreement to acquire Viagene, Inc. ("Viagene"), two
lawsuits purporting to be class actions were filed on April 24 and May 1, 1995,
respectively, in the Court of Chancery of the State of Delaware against named
directors and officers of Viagene and against Viagene and Chiron. In one case,
Chiron is sued on a theory that it aided and abetted alleged breaches of
fiduciary duty by Viagene's directors and officers in approving the proposed
acquisition by Chiron. In the other case, Chiron is sued for alleged breaches of
fiduciary duty as a controlling stockholder of Viagene. Plaintiffs seek
declaratory and injunctive relief, an accounting and costs and disbursements.
Defendants have received an open extension of time to answer or otherwise
respond. Chiron believes these suits are without merit.
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 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. 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
45
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 12 -- LEGAL PROCEEDINGS (CONTINUED)
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., C.A. No. 744522-2). Plaintiff sought injunctive and declaratory relief, and
an accounting, costs and disbursements, including attorneys' and experts' fees,
and other relief.
On October 17, 1995, the PERERA plaintiffs commenced a new action (the
"Federal Action") in the United States District Court for the Northern District
of California, against the same defendants and Ciba-Geigy, Ltd., Ciba-Geigy's
Chairman Alex Krauer, Ciba-Geigy Corporation, and Ciba Biotech Partnership, Inc.
(collectively, the "Ciba Defendants"). The Federal Action asserts both state and
federal claims, including a claim under Sections 10(b), 14(d) and 14(e) of the
Securities Exchange Act of 1934, and seeks damages and injunctive relief. On
October 23, 1995, in light of the filing of the Federal Action, the PERERA
action was dismissed by stipulation of the parties.
Plaintiffs and all of the defendants other than the Ciba Defendants have
entered into an agreement to settle the Federal Action on a class-wide basis,
subject to approval by the Court. Under the terms of that settlement agreement,
Chiron will pay plaintiffs' counsel up to $300,000 in attorneys fees and
expenses, as may be awarded by the Court, and will pay the costs of class
notice. Chiron has no other financial obligations under the settlement
agreement, which also contemplates that the HANNA and DEZUBE actions will be
dismissed as moot following approval of the settlement and dismissal of the
Federal Action. It is presently expected that the settlement will be presented
to the District Court for preliminary approval at a status conference in March
1996, and that a final approval hearing will be scheduled within two months
thereafter, following notice to the plaintiff class.
NOTE 13 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995
----------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MAR. 31
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.......................................... $ 325,897 $ 274,688 $ 281,752 $ 218,246
Gross margin...................................... 145,846 127,798 139,786 93,627
Net income (loss)................................. 17,592 (145,107) 830 (385,778)
Net income (loss) per share....................... 0.40 (3.59) 0.02 (9.64)
<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
</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 Notes 2 and 3, the first quarter of 1995 included a $230.7
million write-off of purchased in-process technology related to the acquisitions
of CCD, Ciba's interest in Chiron Biocine Company and Biocine S.p.A., and IOLAB.
The first quarter also included other charges related to the
46
<PAGE>
CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
NOTE 13 -- QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
Ciba transaction totaling $49.5 million, and restructuring-related charges of
$37.6 million. The third quarter of 1995 included a $130.3 million write-off of
purchased in-process technology related to the Viagene acquisition.
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 14 -- SUBSEQUENT EVENT
On February 17, 1996, Chiron and Behringwerke AG, a subsidiary of Hoechst
AG, reached an agreement whereby Chiron will purchase a 49 percent interest in
the human vaccine business of Behringwerke AG for Deutsche mark 171.5 million in
cash. Under the terms of the agreement, Chiron has an option to purchase the
remaining 51 percent interest in March 1998, 1999, 2000 or 2001 and Behringwerke
AG has the option to have Chiron acquire the remaining 51 percent interest in
March 2001. During the period of mutual ownership, Chiron and Behringwerke AG
will operate the vaccine business as a joint venture. Chiron will report its
share of the joint venture's results as equity in earnings of unconsolidated
joint businesses. Consummation of the transaction is subject to certain
conditions, including regulatory approvals and customary conditions prior to
closing.
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Chiron Corporation:
We have audited the accompanying consolidated balance sheets of Chiron
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. 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. The accompanying consolidated
statements of operations, stockholders' equity and cash flows of Chiron
Corporation and subsidiaries for the year ended December 31, 1993, were audited
by other auditors whose report thereon dated February 25, 1994, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chiron
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
February 20, 1996
48
<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, 1995, there were 8,078
holders of record of Chiron common stock, 846 remaining holders of record of
Cetus common stock and 45 remaining holders of record of Viagene 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 1995 and 1994 are shown
below.
<TABLE>
<CAPTION>
1995 1994
--------------------- --------------------
HIGH LOW HIGH LOW
--------- -------- -------- --------
<S> <C> <C> <C> <C>
First Quarter........................................................... $ 81 $ 51 3/4 $ 96 $ 63 1/2
Second Quarter.......................................................... 68 3/4 47 3/4 69 1/2 53 3/4
Third Quarter........................................................... 101 3/4 62 1/2 74 1/4 50 3/4
Fourth Quarter.......................................................... 113 3/4 83 85 56 1/4
</TABLE>
49
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF CHIRON CORPORATION
JURISDICTION OF
INCORPORATION OR
SUBSIDIARY ORGANIZATION
- ----------------------------------------------------------------------------
Cetus Oncology Corporation (d/b/a Chiron Therapeutics) Delaware, USA
Cetus Generic Corporation Delaware, USA
Chiron b.v. Netherlands
EuroCetus Nederland b.v. Netherlands
Chiron GmbH Germany
Chiron France Sarl France
Chiron Italia Srl Italy
Chiron UK Ltd. United Kingdom
Chiron lberia SA Spain
Cetus Trading A.G. Switzerland
Chiron Partners California, USA
Chiron Alpha Corporation California, USA
Chiron Properties, Inc. California, USA
Chiron Biocine Acquisition Corporation Delaware, USA
Chiron Biocine Corporation California, USA
Chiron (Bermuda) Ltd. Bermuda
Chiron Biocine b.v. Netherlands
Biocine, SpA Italy
Biocine Sarl France
Chiron Mimotopes Pty., Ltd. Australia
Chiron Mimotopes U.S. California, 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 Viagene, Inc. Delaware, USA
Ciba Corning Diagnostics Corp. Delaware, USA
Ciba Diagnostics Australia Pty. Ltd. Australia
Ciba Corning Diagnostics Australia Pty. Limited Australia
Australian Diagnostics Corporation Pty. Ltd. Australia
Ciba Corning Diagnostics GmbH Austria
Ciba Corning Diagnostics s.a./n.v. Belgium
Ciba Corning Canada Inc. Canada
Ciba Corning Diagnostics Limited England
Ciba Corning Diagnostics Netherlands Ltd. England
Ciba Corning Diagnostics S.A. France
Ciba Corning Diagnostics GmbH Germany
Ciba Corning Diagnostics (H.K.) Ltd. Hong Kong
Ciba Corning Marketing Services (H.K.) Ltd. Hong Kong
Ciba Corning Diagnostics SpA Italy
Ciba Corning Diagnostics K.K. Japan
<PAGE>
EXHIBIT 21 CONTINUED
LIST OF SUBSIDIARIES OF CHIRON CORPORATION
JURISDICTION OF
INCORPORATION OR
SUBSIDIARY ORGANIZATION
- ----------------------------------------------------------------------------
Ciba Corning Diagnostics de Mexico, S.A. de C.V. Mexico
Ciba Corning Korea, Ltd. Korea
Ciba Corning Diagnostics Sp.z.o.o. Poland
Ciba Corning Diagnostics S.A. Spain
Ciba Corning Diagnostics A.G. Switzerland
Ciba Corning Diagnostics Foreign Sales Corporation U.S. Virgin Islands
Ciba Corning Diagnostics Co., Ltd. Taiwan
Ciba Corning Diagnostics, Lda. Portugal
Chiron Vision Corporation Delaware, USA
Adatomed GmbH Germany
IOL - GmbH Germany
Magnum Diamond South Dakota, USA
New Gluco, Inc. Delaware, USA
Chiron Vision Australia Australia
Chiron Vision UK, Ltd. United Kingdom
Chiron Vision Canada, Inc. Canada
Chiron Vision France, SA France
Domilens France
Chiron Vision Espana SA Spain
Domilens S.A. Sweden
Domilens, Inc. Delaware, USA
Iolab Corporation Delaware, USA
Chiron Vision (Singapore) Pte, Ltd. Singapore
Chiron Vision Italia S.r.l. Italy
Hardlens Co., Inc. California, USA
Softlens Co., Inc. California, USA
Chiron Technolas Opthalmologische Systeme GmbH Germany
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S CONSOLIDATED BALANCE SHEET DATED DECEMBER 31, 1995, AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995, AND
NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 74,318
<SECURITIES> 149,899<F1>
<RECEIVABLES> 285,779
<ALLOWANCES> 18,524
<INVENTORY> 165,941
<CURRENT-ASSETS> 637,003
<PP&E> 658,579
<DEPRECIATION> 140,761
<TOTAL-ASSETS> 1,490,198
<CURRENT-LIABILITIES> 368,595
<BONDS> 420,188<F2>
0
0
<COMMON> 417
<OTHER-SE> 671,995<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,490,198
<SALES> 922,853
<TOTAL-REVENUES> 1,100,582
<CGS> 415,798
<TOTAL-COSTS> 415,798
<OTHER-EXPENSES> 1,167,212<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,362<F5>
<INCOME-PRETAX> (490,774)
<INCOME-TAX> 21,689
<INCOME-CONTINUING> (512,463)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (512,463)
<EPS-PRIMARY> (12.62)
<EPS-DILUTED> (12.62)
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES.
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASE OBLIGATIONS AND
NOTES PAYABLE.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, CUMULATIVE FOREIGN
CURRENCY TRANSLATION ADJUSTMENT AND UNREALIZED GAIN FROM INVESTMENTS.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT; SELLING, GENERAL AND ADMINISTRATIVE;
WRITE-OFF OF IN-PROCESS TECHNOLOGIES; COSTS RELATED TO CIBA TRANSACTION;
RESTRUCTURING AND REORGANIZATION CHARGES AND OTHER OPERATING EXPENSES.
<F5>CONSISTS OF INTEREST EXPENSE AND RELATED COSTS ON CONVERTIBLE DEBENTURES AND
OTHER INTEREST EXPENSE.
</FN>
</TABLE>
