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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-12798
CHIRON CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 94-2754624
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4560 Horton Street, Emeryville, California 94608
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(Address of principal executive offices) (Zip code)
(510) 655-8730
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1997
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Common Stock, $0.01 par value 172,897,928
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CHIRON CORPORATION
TABLE OF CONTENTS
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PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996. . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996. . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2
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CHIRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 99,335 $ 68,114
Short-term investments in marketable debt securities 27,944 38,694
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Total cash and short-term investments 127,279 106,808
Accounts receivable 327,306 351,971
Inventories 181,286 180,534
Other current assets 63,448 57,455
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Total current assets 699,319 696,768
Noncurrent investments in marketable debt securities 14,001 22,027
Property, plant, equipment and leasehold improvements, at cost:
Land and buildings 231,760 231,998
Laboratory, production and office equipment 385,934 381,421
Leasehold improvements 116,092 114,282
Construction in progress 75,895 69,120
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809,681 796,821
Less accumulated depreciation and amortization (227,795) (213,217)
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Net property, plant, equipment and leasehold improvements 581,886 583,604
Purchased technology, net 63,165 65,592
Other intangible assets, net 73,182 76,669
Investments in equity securities and affiliated companies 183,592 184,328
Other assets 63,270 59,682
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$ 1,678,415 $ 1,688,670
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 81,768 $ 96,157
Accrued compensation and related expenses 44,506 56,695
Short-term borrowings 143,090 137,467
Current portion of unearned revenue 33,542 19,638
Taxes payable 36,530 33,407
Other current liabilities 128,137 129,805
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Total current liabilities 467,573 473,169
Long-term debt 391,688 419,589
Other noncurrent liabilities 29,420 31,057
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Total liabilities 888,681 923,815
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Commitments and contingencies
Stockholders' equity:
Common stock 1,724 1,707
Additional paid-in capital 1,789,914 1,774,406
Accumulated deficit (1,017,218) (1,032,554)
Cumulative foreign currency translation adjustment (18,288) (6,318)
Unrealized gain from investments 34,562 28,574
Notes receivable from stock sales (960) (960)
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Total stockholders' equity 789,734 764,855
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$ 1,678,415 $ 1,688,670
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</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.
3
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CHIRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<TABLE>
<CAPTION>
Three Months Ended
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March 31, March 31,
1997 1996
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Revenues:
Product sales, net $251,129 $239,822
Equity in earnings of unconsolidated joint businesses 25,214 23,608
Collaborative agreement revenues 26,848 31,414
Other revenues 27,092 10,907
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Total revenues 330,283 305,751
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Expenses:
Cost of sales 108,332 101,979
Research and development 91,705 84,048
Selling, general and administrative 96,606 92,330
Other operating expenses 3,279 3,107
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Total expenses 299,922 281,464
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Income from operations 30,361 24,287
Interest expense (8,486) (7,013)
Other income, net 353 1,195
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Income before income taxes 22,228 18,469
Provision for income taxes 6,892 5,725
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Net income $ 15,336 $ 12,744
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Net income per share $ 0.09 $ 0.07
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Weighted average number of shares
used in computing per share amounts 176,610 178,485
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</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.
4
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CHIRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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<TABLE>
<CAPTION>
Three Months Ended
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March 31, March 31,
1997 1996
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Cash flows from operating activities:
Net income $ 15,336 $ 12,744
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 22,149 27,666
Other, net 5,582 5,548
Changes, excluding effects of acquisitions, to:
Accounts receivable 11,789 (12,571)
Inventories (18,521) (10,814)
Other current assets (2,727) (6,556)
Accounts payable and accrued expenses (22,106) (21,035)
Taxes payable 3,210 3,893
Other current liabilities 420 5,436
Current portion of unearned revenue 14,392 (746)
Other noncurrent liabilities (206) 1,784
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Net cash provided by operating activities 29,318 5,349
Cash flows from investing activities:
Purchases of investments in marketable debt securities (9,418) (44,517)
Proceeds from sale and maturity of investments in
marketable debt securities 28,178 59,317
Capital expenditures (15,499) (31,841)
(Increase) decrease in other assets 4,603 (1,156)
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Net cash provided by (used in) investing activities 7,864 (18,197)
Cash flows from financing activities:
Net borrowings under line of credit arrangements -- 5,600
Proceeds from issuance of short-term debt 8,271 --
Repayment of notes payable and capital leases (29,698) (3,849)
Proceeds from issuance of common stock 15,466 21,588
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Net cash provided by (used in) financing activities (5,961) 23,339
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Net increase in cash and cash equivalents 31,221 10,491
Cash and cash equivalents at beginning of the period 68,114 74,318
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Cash and cash equivalents at end of the period $ 99,335 $ 84,809
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</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.
5
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CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information at March 31, 1997, and for the three months ended
March 31, 1997 and 1996, is unaudited, but includes all normal recurring
adjustments which the management of Chiron Corporation (the "Company" or
"Chiron") believes to be necessary for fair presentation of the periods
presented. The consolidated balance sheet amounts at December 31, 1996
have been derived from audited financial statements. Interim results are
not necessarily indicative of results for a full year. This information
should be read in conjunction with Chiron's audited consolidated financial
statements for the year ended December 29, 1996, which are included in the
Annual Report on Form 10-K filed by the Company with the Securities and
Exchange Commission.
Certain previously reported amounts have been reclassified to conform
with the current period presentation.
FISCAL YEAR
The fiscal year of the Company is a 52 or 53-week year ending on the
Sunday nearest the last day in December of each year. As a result, the
first quarters of 1997 and 1996 represent the thirteen-week periods ended
March 30, 1997 and March 31, 1996, respectively. For presentation
purposes, dates used in the consolidated financial statements and notes
refer to the calendar month end.
INVENTORIES
Pharmaceutical inventories are stated at the lower of cost or market
using the average cost method or, in the case of vaccine products, using
the last-in, first-out ("LIFO") method. Diagnostic and ophthalmic products
are valued at cost, using the first-in, first-out ("FIFO") method which is
less than market value. Inventories consist of the following:
MARCH 31, DECEMBER 31,
1997 1996
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(IN THOUSANDS)
Finished goods $ 91,558 $ 94,875
Work in process 49,306 45,874
Raw materials 40,422 39,785
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$181,286 $180,534
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INCOME TAXES
Income tax expense for the quarters ended March 31, 1997 and March 31,
1996 is based on an estimated annual effective income tax rate.
6
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PER SHARE DATA
Per share data 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.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), which will be effective for financial statements for periods
ending after December 15, 1997, including interim periods, and establishes
standards for computing and presenting earnings per share. Earlier
application is not permitted. In its consolidated financial statements for
the year ending December 31, 1997, the Company will make the required
disclosures of basic and diluted earnings per share and provide a
reconciliation of the numerator and denominator of its basic and diluted
earnings per share computations. All prior period earnings per share data
will be restated by the Company upon adoption of SFAS 128. The application
of SFAS 128 for the three months ended March 31, 1997 and 1996 would not
have a material effect on the Company's per share data presented for those
periods.
2. CONTINGENCIES
The Company is party to various claims, investigations and legal
proceedings arising out of the normal course of its business. These
claims, investigations and legal proceedings relate to intellectual
property rights, contractual rights and obligations, employment matters,
shareholder derivative claims, claims of product liability, and other
issues. While there can be no assurance that an adverse determination of
any such matters could not have a material adverse impact in any future
period, management does not believe, based upon information known to it,
that the final resolution of these matters will have a material adverse
effect upon the Company's consolidated financial position and annual
results of operations and cash flows.
3. LONG-TERM DEBT
In January 1997, the Company entered into an agreement to purchase for
$29.8 million a manufacturing facility and related buildings that had been
previously leased under a long-term capital lease obligation. As a result,
the Company eliminated the related obligation which totaled $29.4 million.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCES OF
UNANTICIPATED EVENTS.
THE DISCUSSION BELOW SHOULD BE READ IN CONJUNCTION WITH PART I, ITEM 1,
"FINANCIAL STATEMENTS," OF THIS QUARTERLY REPORT ON FORM 10-Q AND PART II, ITEMS
7 AND 8, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,"
RESPECTIVELY, OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 29, 1996.
Chiron is a diversified, science-driven, market-directed 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; and (iv) ophthalmic surgical products, including instruments
and devices used for the surgical correction of vision and intraocular implants
to deliver drugs to the eye. Chiron also develops or acquires new technologies,
employing these technologies to discover new products for the Company or for its
partners.
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 for each of the three-month periods ended March
31:
1997 1996
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(IN THOUSANDS)
Diagnostic products $149,022 $135,911
Ophthalmic products 50,338 44,941
Vaccine products 18,519 20,834
Betaseron-TM- sales 13,788 20,892
Oncology products 18,676 16,155
Other products 786 1,089
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$251,129 $239,822
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8
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As Chiron continues to increase the sales of certain products that are
seasonal and expand its presence in international markets, particularly European
markets, seasonal fluctuations in product sales and the related gross profit
amounts have become more significant. For this reason, revenues and gross profit
amounts from certain product lines are generally higher in the first half and
fourth quarter of the year. As a result, Chiron's results in any one quarter
are not necessarily indicative of results to be expected for a full year.
Diagnostic product sales include direct sales and sales-type leases of
fully-automated, random-access immunodiagnostic testing systems (ACS:180-TM-,
automated chemiluminescence system) and reagents for these systems, as well
as sales of critical blood analyte systems (CBA-TM-), clinical chemistry
products, manual immunodiagnostic systems and branched DNA ("bDNA") probe
kits for human immunodeficiency virus ("HIV"). Sales of diagnostic products
increased during the first quarter of 1997 as compared to the first quarter
of 1996, primarily due to increased sales of bDNA probe kits, critical blood
analyte systems in foreign markets and immunodiagnostic products. The growth
in immunodiagnostic product sales resulted from increased sales volume of
reagents resulting from the compounding effect of increased ACS:180-TM-
system placements. The overall increase in diagnostic product sales was
partially offset by reduced sales of manual immunodiagnostic systems and
unfavorable foreign currency exchange rates, primarily in Japan, Germany and
France, which when compared to rates in effect for the first quarter of 1996,
reduced the increase by $6.7 million.
Sales of ophthalmic products increased for the first quarter of 1997 as
compared to the first quarter of 1996 primarily due to increased sales of
excimer lasers, refractive surgical instruments and the Vitrasert-TM- Implant
product (Cytovene-TM-; Roche Laboratories). The Vitrasert-TM- Implant was
approved by the U.S. Food and Drug Administration ("FDA") in March 1996.
Vitrasert-TM- Implant revenues for the first quarter of 1997 were $3.2
million as compared to $1.0 million in the first quarter of 1996. The
overall increase in ophthalmic product sales was partially offset by lower
sales of certain cataract surgery products and unfavorable changes in foreign
currency exchange rates between years.
Vaccine product sales consist primarily of sales of pediatric and flu
vaccines primarily in Italy and to certain international health services by
Chiron S.p.A. Sales of Chiron S.p.A.'s flu vaccine are seasonal, with strong
sales generally occurring during the flu season in the fourth quarter of the
year. The decrease in Chiron S.p.A.'s vaccine product sales in the first
quarter of 1997 as compared to the first quarter of 1996 is primarily due to
lower sales of acellular pertussis vaccines and unfavorable changes in foreign
currency exchange rates between years. Vaccine product sales in the first
quarter of 1996 reflect a higher sales volume of acellular pertussis vaccines
sales resulting from their introduction in late 1995.
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-TM- (interferon beta-1b) for Berlex.
Under the terms of the agreement, Chiron earns an initial partial payment for
Betaseron-TM- upon shipment to Berlex and a subsequent secondary payment for
Betaseron-TM- upon Berlex's net sales of the product to patients. The decrease
in Betaseron-TM- product sales during the first three months of 1997 over the
comparable period in 1996 is due to a decrease in commercial vials shipped to
Berlex and a decrease in secondary revenues.
Future levels of Chiron's Betaseron-TM- 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-TM-, and the impact of
competing products, including other beta interferon products that were approved
for sale in the U.S. during 1996. In addition, based upon the level of
inventories carried by Berlex, the timing of future shipments to Berlex and the
related revenue may vary.
9
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Sales of oncology products, principally Proleukin-TM- (aldesleukin,
interleukin-2), increased during the first quarter of 1997 over the comparable
period in 1996, primarily due to a 17 percent increase in Proleukin-TM-
quantities sold. Proleukin-TM- revenues increased in both the domestic and
European markets, but particularly in the U.S.
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
$141.4 million and $133.6 million for the quarters ended March 31, 1997 and
1996, respectively. International sales of diagnostic and ophthalmic products
accounted for the majority of the increase in foreign product sales between
periods. For the quarter ended March 31, 1997, approximately 56 percent of
Chiron's product sales were denominated in foreign currencies. Product sales
would have been $10.0 million higher during the first quarter of 1997 if
currency exchange rates remained the same as in 1996. 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 but are impacted by the Company's joint partners' and
collaborators' non-U.S. operations.
Equity in earnings of unconsolidated joint businesses consists
substantially of Chiron's one-half interest in the pretax operating earnings
of its joint diagnostics business with Ortho Diagnostic Systems, Inc.
("Ortho"), a Johnson & Johnson ("J&J") company. The joint business sells
tests used to screen blood for the potential presence of hepatitis C virus
("HCV") and HIV. The joint business also holds the immunodiagnostic rights to
Chiron's hepatitis and retrovirus technology and receives royalties from
several companies, including Abbott Laboratories and Pasteur Sanofi
Diagnostics, for their sales of certain tests. Chiron and Ortho are each
developing new instrument systems expected to contain broad menus of
immunodiagnostic tests to serve the clinical diagnostic segment of the
market. A recently concluded arbitration confirmed that Chiron is required to
obtain Ortho's agreement in order to market hepatitis and retrovirus tests
that are being developed for use on Chiron Diagnostics' new systems. Although
it cannot assure the ultimate resolution of on-going negotiations with Ortho,
Chiron believes that both companies ultimately will market these tests for
use on their respective new instrument systems.
During the first quarter of 1997, Chiron's share of the pretax operating
earnings of the joint business, which is 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, increased to
$25.1 million from $22.5 million for the comparable quarter of 1996. The
increase was primarily due to increased sales of HCV and HIV tests and
increased royalties, partially offset by a reduction in the revenue derived
from the final annual accounting. In the first quarter of 1997, Chiron
recognized joint business revenue of $0.8 million from the final accounting
for 1996, as compared to $3.8 million recognized in the first quarter of 1996
from the final accounting for 1995.
Also included in equity in earnings of unconsolidated joint businesses is
Chiron's 49 percent share of the after-tax operating results of a joint venture
with Behringwerke AG of Germany, which was acquired in July 1996. Results from
the joint venture are recorded by Chiron on a one-month lag. Chiron's share of
earnings was $0.1 million, which includes amortization of intangibles and
Chiron's share of a $2.0 million up-front license fee that was expensed. The
low earnings are also due in part to the seasonal nature of the business.
Equity in earnings of unconsolidated joint businesses for the first quarter
of 1996 also includes $1.2 million related to Chiron's 50 percent interest in a
generic cancer chemotherapeutics business with Ben Venue Laboratories, Inc.
("Ben Venue"). Chiron sold its interest in this business to Ben Venue in May
1996.
Collaborative agreement revenues consist of fees received for research
services as they are performed, fees received for completed research or
technology, fees received upon attainment of benchmarks specified in the related
research agreements, and proceeds from sales of biological materials to research
partners for clinical and preclinical testing. Collaborative agreement revenues
for the first quarter of 1997 decreased to $26.8 million from $31.4 million in
the first quarter of 1996. In the first
10
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quarter of 1996, Chiron recognized revenues of $7.5 million pursuant to the
terms of a technology transfer and development agreement with Japan Tobacco Inc.
("JT"), whereby the pharmaceutical division of JT acquired a non-exclusive,
perpetual license to apply certain of Chiron's combinatorial chemistry
technologies in JT's research and product development programs. Under this
agreement, Chiron will earn another $7.5 million during the third quarter of
1997.
Also included in collaborative agreement revenues are amounts from Novartis
AG ("Novartis"), the successor to Ciba-Geigy Ltd. ("Ciba"). Pursuant to the
terms of a research funding agreement, Novartis agreed in 1995 to provide $250
million (which may be increased to $300 million subject to certain conditions)
over five years in support of research at Chiron. As a result, Chiron
recognized revenues of $15.8 million and $16.0 million under this agreement
during the first quarters of 1997 and 1996, respectively. Through March 31,
1997, Chiron has cumulatively recognized revenues of $114.8 million pursuant to
this agreement. Chiron anticipates continued utilization of the research
funding provided by Novartis.
Additionally, during the first quarter of 1997, Chiron recognized $3.8
million of collaborative agreement revenues pursuant to the November 1996
agreement with Novartis, which was primarily executed in conjunction with a
consent and agreement that resolved the Federal Trade Commission's review of the
merger between Ciba and Sandoz Ltd. which created Novartis. In partial
consideration for Chiron agreeing to grant royalty-bearing licenses for certain
patent rights on the herpes simplex virus thymidine kinase gene in the field of
gene therapy, Novartis agreed to pay Chiron up to $60.0 million over the next
five years, $15.0 million of which relates to 1997 and was received in January
1997.
Other revenues consist principally of product royalties and sales fees
earned by the Company for sales and marketing services for
Aredia-TM-(pamidronate disodium for injection) that were rendered on behalf
of Novartis. Other revenues increased in the first quarter of 1997 as
compared to the first quarter of 1996, primarily due to increased sales fees
resulting from increased sales of Aredia-TM- in the U.S. These sales fees
increased to $12.8 million during the first quarter of 1997 from $3.6 million
during the comparable period in 1996. Additionally, other revenues increased
due to increased royalties related to hepatitis B and insulin and royalty
revenues resulting from Schering's European sales of Betaferon-TM- which
started during the second quarter of 1996. Chiron's contract with Novartis
for exclusive promotion of Aredia-TM- in the U.S. expired in March 1997.
Under a new agreement, the details of which will be finalized in 1997, Chiron
and Novartis will co-promote Aredia-TM- for two additional years after a
six-month transitional period. The sales fee income resulting from the new
agreement is not expected to be as high as current levels of income under the
prior agreement.
COSTS AND EXPENSES
Cost of sales increased consistently with the increase in product sales
between years. The gross profit margin was 57 percent for the first quarter of
1997 and 1996. Improvements in gross profit margins, resulting from increased
sales of immunodiagnostic reagents and bDNA kits, were offset by certain charges
related to vaccine products and an adverse sales mix occasioned from sales of
lower margin critical blood analyte systems to foreign distributors. Gross
profit 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 from $84.0 million in the first
quarter of 1996 to $91.7 million in 1997. Chiron's research and development
expenses fluctuate from period to period depending upon the extent of clinical
trial-related activities, including the manufacturing of material; the number of
products under development and their progress; and the acquisition of companies
and new technology and licensing rights. The overall increase in research and
development expenses was due to
11
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the continued development of bDNA probes; the ACS:Centaur-TM-, a more powerful
immunoassay system designed to markedly increase laboratory productivity and
provide a platform for unique analytes that will help clinicians manage disease
progression; Regranex-TM-, a wound healing agent; as well as additional amounts
related to research involving hepatitis and other vaccines. Additionally,
during the first quarter of 1997, Chiron made a $1.5 million payment to Novartis
resulting from the February 1997 filing of a new drug application with the FDA
for Myotrophin-TM- (rhIGF-1 or mecasermin [recombinant DNA origin]) Injection.
On May 8, 1997, an FDA advisory committee found that there was not substantial
evidence that Myotrophin-TM- Injection is effective in the treatment of
amyotrophic lateral sclerosis (ALS or Lou Gehrig's disease). Chiron and its
collaborative partner, Cephalon, Inc., will be reviewing with the FDA the
advisory committee's recommendation.
During 1995 and 1996, Chiron, together with J&J, co-funded the development
and introduction of a home HIV testing service business, Direct Access
Diagnostics. Chiron recently elected not to exercise its option, which expires
in May 1997, to participate in this venture with J&J.
Selling, general and administrative ("SG&A") expenses as a percentage of
product sales was 38 percent for the first quarter of 1997 and 1996. Selling and
marketing expenses continue to represent the largest portion of total SG&A
expenses, as Chiron devoted significant resources to support sales volumes in
its existing product lines as well as new products, such as Chiron's new bDNA
probes and Rapidpoint-TM- 400, a critical care system designed specifically for
critical care settings in hospitals. The Rapidpoint-TM- 400 was introduced in
Europe during the first quarter of 1997, with release worldwide planned for
later this year.
Interest expense increased between the first quarters of 1997 and 1996 as a
result of increased debt borrowings.
Other income, net, consists primarily of investment income on the Company's
cash and investment balances and other non-operating gains and losses. Other
income, net, decreased between the first quarters of 1997 and 1996, primarily as
a result of reduced investment income arising from lower balances in the
Company's investment portfolio and exchange rate losses.
The provision for income taxes in 1997 and 1996 is based on an estimated
annual effective income tax rate. The 1997 rate is less than the U.S. Federal
statutory rate, primarily due to the utilization of foreign and U.S. net
operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Chiron's capital requirements are generally funded from debt borrowings
and sales of equity. In addition to these sources of capital, future capital
requirements may be financed through a combination of debt, utilization of
research funding and debt guarantees provided by Novartis, possible
off-balance-sheet financing, cash generated from operations and the use of
existing cash and investment balances. Chiron's cash and investments, which
totaled $141.3 million at March 31, 1997, are invested in a diversified
portfolio of investment grade financial instruments, including money market
instruments, corporate notes and bonds, government or government agency
securities, and 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.
Chiron attempts to reduce its exposure to fluctuations in foreign currency
exchange rates by entering into forward currency contracts ("forwards") and
options. The Company is
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primarily exposed to fluctuations in currencies in western European countries
and Japan. Forwards are used to hedge balance sheet exposure resulting from
completed transactions denominated in a foreign currency, and options are used
to hedge certain anticipated transactions. Forward contracts are settled
quarterly, and option contracts expire quarterly through December 1997. As of
March 31, 1997, the Company held forward and option contracts totaling $76.6
million and $88.0 million, respectively.
In future periods, Chiron expects to incur substantial capital spending.
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 three months ended March 31, 1997, cash and investments in
marketable debt securities increased by $12.4 million. The increase was
primarily due to $29.3 million of cash generated by operations, $15.5 million
of proceeds related to the issuance of common stock under the Company's stock
option and employee stock purchase plans and $8.3 million of incremental
short-term debt borrowings. These increases were offset by $15.5 million of
capital expenditures and the repayment of a long-term capital lease
obligation totaling $29.4 million. In January 1997, Chiron purchased a
manufacturing facility and related buildings in Emeryville, California that
had been previously leased under the long-term capital lease obligation.
During the three months ended March 31, 1996, cash and investments in
marketable debt securities decreased by $4.9 million. The decrease was
primarily due to $31.8 million of capital expenditures, offset by $5.3 million
of cash generated by operations, $21.6 million of proceeds related to the
issuance of common stock under the Company's stock option and employee stock
purchase plans and $1.8 million of net debt borrowings.
Chiron believes that its cash and investments, funds provided by operations
and capital market transactions will be sufficient to meet its cash requirements
during the upcoming twelve months and through the foreseeable future.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), which will be effective for financial statements for periods
ending after December 15, 1997, including interim periods, and establishes
standards for computing and presenting earnings per share. Earlier
application is not permitted. In its consolidated financial statements for
the year ending December 31, 1997, Chiron will make the required disclosures
of basic and diluted earnings per share and provide a reconciliation of the
numerator and denominator of its basic and diluted earnings per share
computations. All prior period earnings per share data will be restated by
the Company upon adoption of SFAS 128. The application of SFAS 128 for the
three months ended March 31, 1997 and 1996 would not have a material effect
on the Company's per share data presented for those periods.
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 second quarter of 1997, 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
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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 systems, procedures and facilities for
production) for the Company's products. These may include, for
example, approval of the Company's Italian manufacturing facilities
and processes as satisfying regulatory requirements for production of
the Company's diphtheria, tetanus and genetically engineered acellular
pertussis and adjuvanted flu vaccines, approval for Myotrophin-TM- for
which additional clinical trials may be required by the FDA, and
approval for Quantiplex-TM- for HIV and follow-on bDNA probe products,
for which the FDA may require substantial additional process and
systems validation.
- Inability to maintain or initiate third party arrangements which
generate revenues, in the form of license fees, research and
development support, royalties, sales fees and other payments, in
return for rights in technology or products under development or
promotional or other services provided by the Company.
- 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 if 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, including conflicts as to the strategy for
realizing value arising from evolving opportunities.
- Delay, difficulty or inability on acceptable terms to resolve
conflicts with partners, including resolution with Ortho of Chiron's
ability to market hepatitis and retrovirus immunodiagnostic tests
that are under development for use on its ACS: Centaur-TM-
instrument system.
- Delays or difficulties in developing and acquiring technology and
technical and managerial personnel to manufacture and/or deliver the
Company's products in commercial quantities at reasonable costs and in
compliance with applicable quality assurance and environmental
regulations and governmental permitting requirements.
- Possible changes in laws, regulations and guidelines of regulatory
agencies, which may affect the development and sales of certain of the
Company's products including, for example, off-label sales of
pharmaceuticals and research use only sales of diagnostic tests and
systems.
- 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.
- Difficulties in obtaining key raw materials and supplies of acceptable
quality used in the manufacture of the Company's products.
- Increased costs of development, regulatory approval, manufacture,
sales, and marketing associated with the introduction of novel
products and fluctuation of such costs between periods.
- 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.
- Decline in the Betaseron-TM- 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-TM-; the
impact of competing products, including other beta interferon
products; pricing, promotional and marketing decisions by the
Company's partner, Schering.
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- Changes in the product mix of the Chiron-Ortho joint business, whereby
the proportion of higher margin HCV tests sold relative to other lower
margin products decreases; continued margin erosion of HCV tests.
- Continued increases in research and development spending in order to
develop new products and increase market share.
- Continued or increased pressure to reduce selling prices of the
Company's products.
- 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.
- Changes in the Company's plans involving the utilization of its
long-lived assets, which include manufacturing facilities such as the
Company's idle fill and finishing facility in Puerto Rico, in response
to changes in the projected level of demand for the Company's
products, product pricing, success of clinical trials, timing of
regulatory approval, introduction of competing products and other
market conditions.
- Increased financing costs resulting from the expanded use of debt for
operating and acquisition-related activities.
- 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.
- Seasonal fluctuations in product sales and resulting gross margin
amounts.
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ITEM 1. LEGAL PROCEEDINGS.
The Company is party to certain lawsuits, which are described in
Part I, Item 3, "Legal Proceedings," on page 10 of the Company's
Annual Report on Form 10-K for the year ended December 29, 1996. No
material developments in the area of legal proceedings have occurred
since such Form 10-K was filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit
Number Exhibit
------- -------
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, as
filed with the Office of the Secretary of State of Delaware
on August 17, 1987, incorporated by reference to Exhibit
3.01 of the Registrant's Form 10-K report for fiscal year
1996.
3.02 Certificate of Amendment of Restated Certificate
of Incorporation of the Registrant, as filed with
the Office of the Secretary of State of Delaware
on December 12, 1991, incorporated by reference to
Exhibit 3.02 of the Registrant's Form 10-K report
for fiscal year 1996.
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.
3.04 Certificate of Amendment of Restated Certificate
of Incorporation of the Registrant, as filed with
the Office of the Secretary of State of Delaware
on May 22, 1996, incorporated by reference to
Exhibit 3.04 of the Registrant's Form 10-Q report
for the period ended June 30, 1996.
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.
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4.03 Second Supplemental Indenture, dated as of March
25, 1996, by and among the Registrant, Cetus
Oncology Corporation (formerly Cetus Corporation),
and Bankers Trust Company, incorporated by
reference to Exhibit 4.03 of the Registrant's Form
10-Q report for the period ended June 30, 1996.
4.04 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.
4.05 $1,000,000 County of Lorain, Ohio Variable Rate
Industrial Revenue Bonds dated as of July 1, 1984,
due July 1, 2014, incorporated by reference to
Exhibit 4.06 of the Registrant's Form 10-Q report
for the period ended April 2, 1995. The Registrant
agrees to furnish to the Commission upon request a
copy of such agreement which it has elected not to
file under the provisions of Regulation
601(b)(4)(iii).
4.06 $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,
incorporated by reference to Exhibit 10.02 of the
Registrant's Form 10-K report for fiscal year
1995.
10.03 Second Amendment to Lease, dated as of May 9,
1996, between BGR Associates, a California limited
partnership, as lessor and Registrant, as lessee
[BGR I Property Building NQ Lease], incorporated
by reference to Exhibit 10.03 of the Registrant's
Form 10-K report for fiscal year 1996.
10.04 Third Amendment to Triple Net Lease, dated as of
January 31, 1997, between BGR Associates, a
California limited partnership, as lessor and
Registrant, as lessee [BGR I Property Building NQ
Lease], incorporated by reference to Exhibit 10.04
of the Registrant's Form 10-K report for fiscal
year 1996.
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<PAGE>
10.05 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.
10.06 First Amendment to Lease between Registrant and
BGR Associates II, a California limited
partnership, dated as of March 15, 1995,
incorporated by reference to Exhibit 10.04 of the
Registrant's Form 10-K report for fiscal year
1995.
10.07 Second Amendment to Lease, dated as of May 9,
1996, between BGR Associates II, a California
limited partnership, as lessor and Registrant, as
lessee, incorporated by reference to Exhibit 10.07
of the Registrant's Form 10-K report for fiscal
year 1996.
10.08 Third Amendment to Triple Net Lease, dated as of
January 31, 1997, between BGR Associates II, a
California limited partnership, as lessor and
Registrant, as lessee [BGR II Property Lease],
incorporated by reference to Exhibit 10.08 of the
Registrant's Form 10-K report for fiscal year
1996.
10.09 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.
10.10 Second Amendment to Lease dated as of March 15,
1995, between BGR Associates, a California limited
partnership, and Registrant, incorporated by
reference to Exhibit 10.73 of the Registrant's
Form 10-K report for fiscal year 1995.
10.11 Third Amendment to Lease, dated as of May 9, 1996,
between BGR Associates, a California limited
partnership, as lessor and Registrant, as lessee
[BGR I Property Building R Lease], incorporated by
reference to Exhibit 10.11 of the Registrant's
Form 10-K report for fiscal year 1996.
10.12 Fourth Amendment to Triple Net Lease, dated as of January
31, 1997, between BGR Associates, a California limited
partnership, as lessor and Registrant, as lessee [BGR I
Property Building R Lease], incorporated by reference to
Exhibit 10.12 of the Registrant's Form 10-K report for
fiscal year 1996.
10.13 Triple Net Lease dated as of January 20, 1989,
between Cetus Corporation and BGR Associates III,
a California limited partnership, and Marin County
Exchange
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Corporation, incorporated by reference to Exhibit 10.34 of
the Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.14 First Amendment to Triple Net Lease, dated as of
September 10, 1996, between BGR Associates III, a
California limited partnership, as lessor and
Registrant, as lessee, incorporated by reference
to Exhibit 10.14 of the Registrant's Form 10-K
report for fiscal year 1996.
10.15 Second Amendment to Triple Net Lease, dated as of
January 31, 1997, between BGR Associates III, a
California limited partnership, as lessor and
Registrant, as lessee [BGR III Lease],
incorporated by reference to Exhibit 10.15 of the
Registrant's Form 10-K report for fiscal year
1996.
10.16 Assignment of Lessor Claims, dated as of January
31, 1997, between BGR Associates III, a California
limited partnership, as assignor and Registrant,
as assignee, incorporated by reference to Exhibit
10.16 of the Registrant's Form 10-K report for
fiscal year 1996.
10.17 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.
10.18 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.
10.19 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.
10.20 Revolving Credit Facility dated as of March 24,
1995, between Chiron Corporation and Swiss Bank
Corporation, San Francisco Branch ("Swiss Bank
Credit Agreement"), incorporated by reference to
Exhibit 10.06 of the Registrant's Form 10-Q report
for the period ended April 2, 1995.
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<PAGE>
10.21 First Amendment to Swiss Bank Credit Agreement
dated as of March 20, 1996.
10.22 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.
10.23 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.
10.24 Chiron 1991 Stock Option Plan, as amended,
incorporated by reference to Annex 2 of the
Registrant's Proxy Statement dated April 11,
1996.*
10.25 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.*
10.26 Form of Automatic Share Right Agreement, Chiron
1991 Stock Option Plan, as amended, incorporated
by reference to Exhibit 10.19 of Registrant's Form
10-Q report for the period ended September 29,
1996.*
10.27 Forms of Option Agreements, Cetus Corporation
Amended and Restated Common Stock Option Plan.*
10.28 Forms of Supplemental Letter concerning the
assumption of Cetus Corporation options by the
Registrant, incorporated by reference to Exhibit
10.27 of Registrant's Form 10-K report for fiscal
year 1996.*
10.29 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.
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<PAGE>
10.30 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.
10.31 Revolving Credit Agreement, dated as of July 12,
1996, between Registrant and Bank of America
National Trust and Savings Association,
incorporated by reference to Exhibit 10.24 of the
Registrant's Form 10-Q report for the period ended
June 30, 1996.
10.32 Form of Debenture Purchase Agreement between the
Registrant and Ciba-Geigy, Limited, a Swiss
corporation, dated June 22, 1990, incorporated by
reference to Exhibit 10.25 of the Registrant's
Form 10-K report for fiscal year 1994.
10.33 Chiron Corporation 1.90% Convertible Subordinated
Note due 2000, Series B, incorporated by reference
to Exhibit 10.25 of the Registrant's Form 10-K
report for fiscal year 1993.
10.34 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.
10.35 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.
10.36 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.
10.37 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.
10.38 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
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<PAGE>
the Registrant's current report on Form 8-K dated November
20, 1994.
10.39 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.
10.40 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.
10.41 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.
10.42 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.*
10.43 Agreement, dated November 27, 1996, between
Ciba-Geigy Limited and the Registrant,
incorporated by reference to Exhibit 10.92 of the
Registrant's Form 8-K report filed with the
Commission on December 17, 1996.
10.44 Amendment dated March 26, 1997, to Agreement dated
November 27, 1996, between Novartis Pharma AG and
the Registrant.
10.45 Letter Agreement, dated May 6, 1996, as to consent
to assignment of contracts to Novartis Limited,
among the Registrant, Ciba-Geigy Limited,
Ciba-Geigy Corporation and Ciba Biotech
Partnership, Inc., incorporated by reference to
Exhibit 10.43 of the Registrant's Form 10-K report
for fiscal year 1996.
10.46 Letter Agreement, dated December 19, 1996,
regarding compensation paid by the Registrant for
director services performed by employees of
Ciba-Geigy Limited, incorporated by reference to
Exhibit 10.44 of the Registrant's Form 10-K report
for fiscal year 1996.*
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<PAGE>
10.47 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.*
10.48 Lease commencing March 1, 1987, between EuroCetus
B.V. and the Municipal Land Company of the City of
Amsterdam (Translation), incorporated by reference
to Exhibit 10.40 of the Registrant's Form 10-K
report for fiscal year 1995.
10.49 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.
10.50 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.
10.51 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.
10.52 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.
10.53 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 10.51 of
Registrant's Form 10-K report for fiscal year
1996.
10.54 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.*
10.55 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.*
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<PAGE>
10.56 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.
10.57 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.]
10.58 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.
10.59 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.
10.60 Description of Executive Officer Variable
Compensation Program, incorporated by reference to
Exhibit 10.58 of the Registrant's Form 10-K report
for fiscal year 1996.*
10.61 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.*
10.62 Amended and Restated License Agreement effective
April 1, 1996, between Ciba Corning Diagnostics
Corp., a Delaware corporation, and Bioanalysis
Limited, a corporation organized under the laws of
the United Kingdom of Great Britain and Northern
Ireland, incorporated by reference to Exhibit
10.56 of the Registrant's Form 10-Q report for the
period ended September 29, 1996. [Certain
confidential information has been omitted from the
Agreement and filed separately with the Securities
and Exchange Commission pursuant to a request by
Registrant for confidential treatment pursuant to
Rule 24b-2.]
24
<PAGE>
10.63 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.
10.64 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.
10.65 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.*
10.66 Letters dated May 6, 1996 and May 25, 1996 to
Magnus Lundberg, incorporated by reference to
Exhibit 10.61 of the Registrant's Form 10-Q report
for the period ended September 29, 1996.*
10.67 Letter dated January 8, 1997 to Magnus Lundberg,
incorporated by reference to Exhibit 10.65 of the
Registrant's Form 10-K report for fiscal year
1996.*
10.68 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.
10.69 Licensing Agreement, effective December 18, 1986,
by and between Miles Laboratories, Inc., a
Delaware corporation, and Ciba Corning Diagnostics
Corp., a Delaware corporation, and Letter dated
December 18, 1992 from Ciba Corning Diagnostics
Corp. to Miles Laboratories, Inc., incorporated by
reference to Exhibit 10.65 of Amendment No. 1 to
the Registrant's Form 10-Q report for the period
ended April 2, 1995. [Certain information has
been omitted from the Agreement pursuant to a
request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.70 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
25
<PAGE>
a request by Registrant for confidential treatment pursuant
to Rule 24b-2.]
10.71 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.]
10.72 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.]
10.73 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.]
10.74 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.]
10.75 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.]
10.76 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.
26
<PAGE>
10.77 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.]
10.78 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.]
10.79 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, incorporated by reference to Exhibit
10.80 of the Registrant's Form 10-K report for
fiscal year 1995. [Certain information has been
omitted from the Agreement and filed separately
with the Securities and Exchange Commission
pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2.
The omitted confidential information has been
identified by the following statement:
"Confidential Treatment Requested".]
10.80 Agreement between Ciba-Geigy Limited and the
Registrant made November 15, 1995, incorporated by
reference to Exhibit 10.81 of the Registrant's
Form 10-K report for fiscal year 1995. [Certain
information has been omitted from the Agreement
and filed separately with the Securities and
Exchange Commission pursuant to a request by
Registrant for confidential treatment pursuant to
Rule 24b-2. The omitted confidential information
has been identified by the following statement:
"Confidential Treatment Requested".]
10.81 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.
10.82 Promissory Note, as amended and restated, dated
January 1, 1995 by Ciba Corning Diagnostics Corp.,
incorporated by
27
<PAGE>
reference to Exhibit 10.83 of the Registrant's Form 10-K
report for fiscal year 1995.
10.83 Commercial lease between Domilyon Corporation and
Domilens Laboratories and Amendment No. 1 to
Commercial Lease dated May 9, 1994, incorporated
by reference to Exhibit 10.84 of the Registrant's
Form 10-K report for fiscal year 1995.
10.84 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,
incorporated by reference to Exhibit 10.85 of the
Registrant's Form 10-K report for fiscal year
1995. [Certain information has been omitted from
the Agreements and filed separately with the
Securities and Exchange Commission pursuant to a
request by Registrant for confidential treatment
pursuant to Rule 24b-2. The omitted confidential
information has been identified by the following
statement: "Confidential Treatment Requested".]
10.85 Reimbursement Agreement, dated as of June 28,
1996, between Ciba-Geigy Limited, a Swiss
corporation, and the Registrant, incorporated by
reference to Exhibit 10.94 of the Registrant's
Form 10-Q report for the period ended June 30,
1996.
10.86 Reimbursement Agreement, dated as of May 20, 1996,
between Ciba-Geigy Limited, a Swiss corporation,
and the Registrant, incorporated by reference to
Exhibit 10.95 of the Registrant's Form 10-Q report
for the period ended June 30, 1996.
10.87 Letter Agreement between the Registrant and Dr.
Richard W. Barker, dated May 1, 1996, incorporated
by reference to Exhibit 10.88 of the Registrant's
Form 10-Q report for the period ended June 30,
1996.*
10.88 Revolving Credit Agreement, dated as of March 23,
1996, between the Registrant and Morgan Guaranty
Trust Company of New York, incorporated by
reference to Exhibit 10.89 of the Registrant's
Form 10-Q report for the period ended June 30,
1996.
10.89 Purchase and Assignment Agreement between
Behringwerke Aktiengesellschaft, on the one side,
and 31.CORSA Verwaltungsgesellschaft mbH and the
Registrant, on the other side, dated February 17,
1996, Closing Agreement, by and among Behringwerke
Aktiengesellschaft, on the one side, and the
Registrant and 31.CORSA Verwaltungsgesellschaft
mbH, on the other side, dated June 29, 1996 and
Letter
28
<PAGE>
Agreement dated June 29, 1996 between the Registrant,
31.CORSA Verwaltungsgesellschaft mbH and Behringwerke
Aktiengesellschaft, incorporated by reference to Exhibit
10.86 of the Registrant's Form 10-Q report for the period
ended September 29, 1996. [Certain confidential information
has been omitted from the Agreements and filed separately
with the Securities and Exchange Commission pursuant to a
request by Registrant for confidential treatment pursuant to
Rule 24b-2.]
10.90 Royalty Projects Agreement by and between Ciba
Corning Diagnostics Corp., a Delaware corporation,
and Ciba-Geigy Limited, a Swiss corporation,
incorporated by reference to Exhibit 10.87 of the
Registrant's Form 10-Q report for the period ended
September 29, 1996. [Certain confidential
information has been omitted from the Agreement
and filed separately with the Securities and
Exchange Commission pursuant to a request by
Registrant for confidential treatment pursuant to
Rule 24b-2.]
10.91 Purchase Agreement between BNP Leasing Corporation
and the Registrant, dated June 28, 1996,
incorporated by reference to Exhibit 10.90 of the
Registrant's Form 10-Q report for the period ended
June 30, 1996.
10.92 Lease Agreement between BNP Leasing Corporation
and the Registrant, dated June 28, 1996,
incorporated by reference to Exhibit 10.91 of the
Registrant's Form 10-Q report for the period ended
June 30, 1996.
10.93 Ground Lease between BNP Leasing Corporation and
the Registrant, dated June 28, 1996, incorporated
by reference to Exhibit 10.92 of the Registrant's
Form 10-Q report for the period ended June 30,
1996.
10.94 Reimbursement Agreement, dated as of July 12,
1996, between Ciba-Geigy Limited, a Swiss
corporation, and the Registrant, incorporated by
reference to Exhibit 10.93 of the Registrant's
Form 10-Q report for the period ended June 30,
1996.
10.95 Form of Performance Unit Agreement, Chiron 1991
Stock Option Plan, as amended, incorporated by
reference to Exhibit 10.94 of the Registrant's
Form 10-K report for fiscal year 1996.*
11 Statement of Computation of Earnings per Share.
27 Financial Data Schedule.
- --------------
* Management contract, compensatory plan or arrangement.
29
<PAGE>
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 30,
1997.
30
<PAGE>
CHIRON CORPORATION
March 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHIRON CORPORATION
DATE: May 14, 1997 BY: /s/Edward E. Penhoet
------------------------- ------------------------------
Edward E. Penhoet, Ph.D.
President and Chief
Executive Officer
DATE: May 14, 1997 BY: /s/Dennis L. Winger
------------------------- ------------------------------
Dennis L. Winger
Senior Vice President, Finance
and Administration, Chief Financial
Officer, and Principal Accounting
Officer
31
<PAGE>
EXHIBIT 10.21
FIRST AMENDMENT
---------------
FIRST AMENDMENT to CREDIT AGREEMENT (this "First Amendment") dated as of
March 20, 1996 between CHIRON CORPORATION (the "Borrower"), and SWISS BANK
CORPORATION, SAN FRANCISCO BRANCH (the "Bank"). Capitalized terms used
herein and not otherwise defined herein shall have their respective meanings
provided in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower and the Bank have entered into a Revolving Credit
Agreement dated as of March 24, 1995 (the "Credit Agreement"); and
WHEREAS, the parties to the Credit Agreement desire to amend the Credit
Agreement;
NOW, THEREFORE, it is agreed:
1. The definition of "Expiry Date" in Section 1 of the Credit
Agreement is hereby amended by deleting the date "March 22, 1996" therein and
inserting in lieu thereof the date "March 24, 1997".
2. This First Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other credit document.
3. From and after the date hereof, all references in the Credit
Agreement and each of the other credit documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as amended hereby.
4. In order to induce the Bank to enter into this First Amendment, the
Borrower hereby makes each of the representations, warranties and agreements
contained in Section 12 of the Credit Agreement on the date hereof, after
giving effect to this First Amendment.
5. This First Amendment shall become effective as of the date first
above written when each of the parties hereto have executed a counterpart of
this First Amendment.
6. This First Amendment may be executed on separate counterparts by
the parties hereto, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument.
<PAGE>
7. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF CALIFORNIA.
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY
JURY.
IN WITNESS WHEREOF, the Borrower and the Bank have caused their duly
authorized officers to execute and deliver this First Amendment as of the
date first above written.
CHIRON CORPORATION
By /s/ J.E. Kent
----------------------------
Name:
Title: Treasurer
SWISS BANK CORPORATION,
SAN FRANCISCO BRANCH
By /s/ Nang S. Peechaphand
----------------------------
Name: Nang S. Peechaphand
Title: Associate Director
Accounting
By /s/ Hans-Ueli Surber
----------------------------
Name: Hans-Ueli Surber
Title: Executive Director
Merchant Banking
-2-
<PAGE>
CETUS CORPORATION
Amended and Restated Common Stock Option Plan
NONSTATUTORY OPTION AGREEMENT
To:
This is to inform you that, under Cetus Corporation's (the "Company") Amended
and Restated Common Stock Option Plan (the "Plan"), the Company has granted
to you a nonstatutory stock option to purchase shares of the Company's Common
Stock (the "Common Stock"). Certain information about this option, including
the number of shares of Common Stock covered by the option, is set forth on
the "Summary Information Sheet" attached to this agreement as EXHIBIT A. This
agreement is intended to formally describe and record other terms and
conditions of this option grant. Capitalized terms used but not defined in
this agreement have the meanings given them in the Plan; a copy of the Plan
is attached to this agreement as EXHIBIT B.
ACCORDINGLY, YOU AND THE COMPANY AGREE AS FOLLOWS:
1. VESTING AND EXPIRATION OF OPTION. In order to exercise this option, you
must remain in the employ of the Company until the Vesting Date on which
this option becomes wholly or partially exercisable. This option shall
become exercisable at the times, and with respect to the number of shares,
set forth on the Summary Information Sheet.
Exercisability of this option may also be accelerated or adjusted as
provided in the Plan or in this agreement. This option expires ten years
after the date it was granted (the "Expiration Date"). If you do not
exercise each portion of the option on the earliest Vesting Date on which
it becomes exercisable, then (subject to the other provisions of this
agreement) you may exercise that portion, in whole or in part, at any time
prior to the Expiration Date. For the purposes of this Agreement, "employ"
and "employment" shall include services as a Consultant or Officer of the
Company.
2. EXERCISE OF OPTION. This option shall be exercised by notice in writing,
signed by you or the person authorized to exercise this option under
paragraph 5, and delivered or mailed by registered or certified mail to
the Company at its general office in Emeryville, California, Attention:
Treasurer. The notice shall state the number of shares with respect to
which you are exercising the option and must be accompanied by payment
of the total option price of the shares being purchased.
3. PAYMENT OF OPTION PRICE. The option price for the purchase of shares of
Common Stock covered by this option is the price specified on the Summary
Information Sheet. Payment in full shall be made for all shares being
purchased upon exercise of an option. Payment may be made in cash, by
check or by shares of Common Stock of the Company endorsed in favor of the
Company or accompanied by a blank stock power, or any combination of the
above. You may pay the option price with shares of Common Stock of the
Company only once in any six-month period. Any Common Stock delivered to
the Company as payment for shares upon exercise of the option shall be
valued at its fair market value, determined by the closing bid price on the
date of exercise of the option.
<PAGE>
4. NON-ASSIGNABILITY OF OPTION. Except for a limited exception set forth
in the Plan, you may not assign or transfer this option except by will
or by the laws of descent and distribution, and only you may exercise
this option during your lifetime.
5. EXERCISE AFTER TERMINATION OF EMPLOYMENT OR DEATH. If your employment by
the Company is terminated for any reason other than death or permanent and
total disability, you may exercise this option, as to all or any of the
shares you were entitled to purchase at the date of termination, at any
time within three months after the date of such termination (but in no
event after the Expiration Date), but not thereafter. If you die or become
permanently or totally disabled while employed by the company (or, in the
case of death, within three months of termination of employment), your
personal representative, heirs or legatees may exercise this option, with
respect to all or any of the shares which you were entitled to purchase
immediately prior to your death or disability, at any time within one year
after your death or disability (but in no event after the Expiration Date),
but not thereafter.
6. DELIVERY OF SHARES. The Company shall not be obligated to deliver any
shares upon exercise of this option until all Federal and state laws and
regulations which the Company may determine are applicable have been
complied with. If shares to be delivered are not registered under the
Securities Act of 1933, as amended, you agree to represent that such shares
are being acquired for investment and not with a view to the sale or
distribution thereof, and shall make such other representations deemed
necessary by counsel to the Company. Stock certificates evidencing
unregistered shares acquired upon exercise of this option shall bear a
restrictive legend as follows:
These securities have not been registered under the Securities
Act of 1933 and may not be transferred or resold without
registration under the Act unless in the opinion of counsel to
the issuer an exemption from registration is then available.
7. ADJUSTMENT OF SHARES. If the number of outstanding shares of Common Stock
of the Company is hereafter increased or decreased, or changed into or
exchanged for a different number or kind of shares or other securities of
the Company or of another corporation, by reason of a reorganization,
merger, consolidation, recapitalization, reclassification, stock split,
combination of shares or declaration of stock dividends, the number and/or
kind of shares covered by this option shall be adjusted proportionately by
the Administrator of the Plan. Any adjustment shall be made without
change in the total exercise price applicable to the unexercised portion of
this option and with a corresponding adjustment in the exercise price per
share. Any adjustment under this Section 7 shall be subject to the
provisions of the Company's Amended and Restated Certificate of
Incorporation, as amended, and applicable law.
<PAGE>
8. ACCELERATION OF VESTING. In the event of a Change of Control (as
defined in the Plan) or upon the Sale of Significant Assets (as
described below), this option shall become exercisable with respect to
100% of the number of shares of Common Stock covered by this option,
unless the Company's Board of Directors, on the basis of those factors
it considers relevant, including the effects on stockholders and option
holders, specifically determines that full acceleration would not be in
the best interests of the Company. If the board makes such a
determination, as a minimum, this option will vest on a pro-rated
monthly basis to the date of such event, according to the percentages
set forth on the Summary Information Sheet, plus an additional twelve
months (also pro-rated monthly).
With respect to a "Sale of Significant Assets", the acceleration of this
option under this paragraph would be triggered by a sale or sales of
portions of the Company's business in any six-month period for cash in an
aggregate amount of $100 million or more. Other dispositions of assets
(for example, a transfer to a joint venture or other corporation or
partnership in exchange for an interest in the venture or entity, a
licensing arrangement, a sale-and-leaseback transaction or a sale of real
property) would not be covered by this paragraph.
9. STOCKHOLDER'S RIGHTS. You will have no rights as a stockholder by virtue of
this option except with respect to shares actually issued to you, and
issuance of shares shall confer no retroactive right to dividends or other
stockholder rights.
10. FEDERAL INCOME TAX. The tax consequences associated with this option and
shares purchased under this option are complex and can depend in part on
your particular circumstances. You should understand, for example, that
generally you will recognize income when the option is exercised, even
before you resell the stock purchased. Also, shares acquired on exercise of
a nonstatutory option which are subject to a repurchase right or other
substantial risk of forfeiture will be subject to the special rules of
section 83 of the Internal Revenue Code. In some such cases, it may be
desirable to make a special election under section 83(b) within 30 days
after you exercise your option. Also, you should be aware that state and
local income tax consequences may be quite different from the federal tax
consequences. For these reasons you should consult your tax advisor about
possible tax consequences.
The Company may withhold from your paycheck or require you to pay to the
Company any amounts required by it to be withheld or paid under applicable
tax requirements, including requirements resulting from the purchase of
shares pursuant to this option. Any such payment shall be made in cash or
by check at the time of exercise.
11. LIMITED STOCK APPRECIATION RIGHTS. If you are an officer of the Company who
is subject to the "short swing" provisions of the Exchange Act of 1934, the
Company has granted to you, in tandem with this option, limited stock
appreciation rights ("Limited Right") equal in number to the number of
shares covered by this option. The terms and conditions governing the
grant of this Limited Right are described in Section 10 of the Plan.
<PAGE>
12. ACCEPTANCE WAIVER. By accepting this option, you accept and agree to be
bound by each and all the terms and conditions of this agreement and of the
Plan. In case of any conflict between this agreement and the terms of the
Plan, the Plan shall control. No waiver of any term or condition of the
agreement or the Plan shall be construed to be a waiver of any other term
or condition or to be a consent to any further waiver of the same or any
other term or condition.
13. BINDING EFFECT. Subject to the limitations of this agreement, this
agreement shall be binding on, and inure to the benefit of, the executors,
administrators, heirs, legal representatives, successors and assigns of the
parties hereto.
CETUS CORPORATION
By:
--------------------------------
ACCEPTED
- -----------------------------
Optionee
<PAGE>
NONSTATUTORY OPTION AGREEMENT
To:
This is to inform you that Cetus Corporation (the "Company") granted to you
on , a nonstatutory option, under the Cetus Corporation Non-
Employee Directors' Stock Option Plan (the "Plan"), to purchase a total of
shares of the Company's Common Stock (the "Common Stock") at a price
of $ per share on , under the following terms and conditions:
1. VESTING AND EXPIRATION OF OPTION. In order to exercise this option, you
must remain as a director of the Company until the Vesting Date on which
this option becomes wholly or partially exercisable. This option shall
become exercisable with respect to the percentage of total shares covered
by the option as follows:
Percentage of Shares
Vesting Date Covered by Option
------------ --------------------
33 1/3%
an additional 33 1/3%
an additional 33 1/3%
Exercisability of this option may also be accelerated or adjusted as
provided in the Plan or this agreement. This option expires ten years
after the date it was granted (the "Expiration Date"). If you do not
exercise each portion of the option on the earliest Vesting Date on which
it becomes exercisable, then (subject to the other provisions of this
Agreement) you may exercise that portion, in whole or in part, at any time
prior to the Expiration Date.
2. EXERCISE OF OPTION. This option shall be exercised by notice in writing,
signed by you or the person authorized to exercise this option under
paragraph 5, and delivered or mailed by registered or certified mail to the
Company at its general office in Emeryville, California, Attention:
Treasurer. The notice shall state the number of shares with respect to
which you are exercising the option and must be accompanied by payment of
the total option price of the shares being purchased.
3. PAYMENT OF OPTION PRICE. Payment in full shall be made for all shares
being purchased upon exercise of an option. Payment may be made in cash,
by check or by shares of Common Stock of the Company endorsed in favor of
the Company or accompanied by a blank stock power, or any combination of
the above. You may pay the option price with shares of Common Stock of the
Company only once in any six-month period. Any Common Stock delivered to
the Company as payment for shares upon exercise of the option shall be
valued at its fair market value, determined by the closing bid price on the
date of exercise of the option.
<PAGE>
4. NON-ASSIGNABILITY OF OPTION. Except for a limited exception set forth in
the Plan, you may not assign or transfer this option except by will or by
the laws of descent and distribution, and only you may exercise this option
during your lifetime.
5. EXERCISE AFTER TERMINATION OF EMPLOYMENT OR DEATH. If your term as a
director of the Company is terminated for any reason other than death or
permanent and total disability, you may exercise this option, as to all or
any of the shares you were entitled to purchase at the date of termination,
at any time within three months after the date of such termination (but in
no event after the Expiration Date), but not thereafter. If you die or
become permanently or totally disabled while a director of the company
(or, in the case of death, within three months of the termination of your
term), your personal representative, heirs or legatees may exercise this
option, with respect to all or any of the shares which you were entitled to
purchase immediately prior to your death or disability, at any time within
one year after your death or disability (but in no event after the
Expiration Date), but not thereafter.
6. DELIVERY OF SHARES. The Company shall not be obligated to deliver any
shares upon exercise of this option until all Federal and state laws and
regulations which the Company may determine are applicable have been
complied with. If shares to be delivered are not registered under the
Securities Act of 1933, as amended, you agree to represent that such shares
are being acquired for investment and not with a view to the sale or
distribution thereof, and shall make such other representations deemed
necessary by counsel to the Company. Stock certificates evidencing
unregistered shares acquired upon exercise of this option shall bear a
restrictive legend as follows:
These securities have not been registered under the Securities
Act of 1933 and may not be transferred or resold without
registration under the Act unless in the opinion of counsel to
the issuer an exemption from registration is then available.
7. ADJUSTMENT OF SHARES. If the number of outstanding shares of Common Stock
of the Company is hereafter increased or decreased, or changed into or
exchanged for a different number or kind of shares or other securities of
the Company or of another corporation, by reason of a reorganization,
merger, consolidation, recapitalization, reclassification, stock split,
combination of shares or declaration of stock dividends, the number and/or
kind of shares covered by this option shall be adjusted proportionately by
the Administrator of the Plan. Any adjustment shall be made without change
in the total exercise price applicable to the unexercised portion of this
option and with a corresponding adjustment in the exercise price per share.
Any adjustment under this Paragraph 7 shall be subject to the provisions of
the Company's Certificate of Incorporation, as then amended, and applicable
law.
<PAGE>
8. ACCELERATION OF VESTING. In the event of a Change of Control (as defined
in the Plan) or upon the Sale of Significant Assets (as described below),
this option shall become exercisable with respect to 100% of the number of
shares of Common Stock covered by this option, unless the Company's Board
of Directors, on the basis of those factors it considers relevant,
including the effects on stockholders and option holders, specifically
determines that full acceleration would not be in the best interest of the
Company. If the board makes such a determination, at a minimum, this
option will vest on a pro-rated monthly basis to the date of such event,
according to the percentages set forth in this agreement, plus an
additional twelve months (also pro-rated monthly).
With respect to a "Sale of Significant Assets", the acceleration of this
option under this paragraph would be triggered by a sale or sales of
portions of the Company's business in any six-month period for cash in an
aggregate amount of $100 million or more. Other dispositions of assets
(for example, a transfer to a joint venture or other corporation or
partnership in exchange for an interest in the venture or entity, a
licensing arrangement, a sale-and-leaseback transaction or a sale of real
property) would not be covered by this paragraph.
9. STOCKHOLDER'S RIGHTS. You will have no rights as a stockholder by virtue
of this option except with respect to shares actually issued to you, and
issuance of shares shall confer no retroactive right to dividends or other
stockholder rights.
10. FEDERAL INCOME TAX. The tax consequences associated with this option and
shares purchased under this option are complex and can depend in part on
your particular circumstances. You should understand, for example, that
generally you will recognize income when the option is exercised, even
before you resell the stock purchased. Also, shares acquired on exercise
of a nonstatutory option which are subject to a repurchase right or other
substantial risk of forfeiture will be subject to the special rules of
section 83 of the Internal Revenue Code. In some such cases, it may be
desirable to make a special election under section 83(b) within 30 days
after you exercise your option. Also, you should be aware that state and
local income tax consequences may be quite different from the federal tax
consequences. For these reasons you should consult your tax advisor about
possible tax consequences.
The Company may require you to pay to the Company any amounts required by
it to be withheld or paid under applicable tax requirements, including
requirements resulting from the purchase of shares pursuant to this option.
Any such payment shall be made in cash or by check at the time of exercise.
11. LIMITED STOCK APPRECIATION RIGHTS. Because you are a director of the
Company, subject to the "short swing" provisions of the Exchange Act of
1934, the Company has granted to you, in tandem with this option, limited
stock appreciation rights ("Limited Right") equal in number to the number
of shares covered by this option. The terms and conditions governing the
grant of this Limited Right are described in the Plan.
<PAGE>
12. ACCEPTANCE WAIVER. By accepting this option, you accept and agree to be
bound by each and all the terms and conditions of this agreement and of
the Plan. In case of any conflict between this agreement and the terms
of the Plan, the Plan shall control. No waiver of any term or condition
of the agreement or the Plan shall be construed to be a waiver of any
other term or condition or to be a consent to any further waiver of the
same or any other term or condition.
13. BINDING EFFECT. Subject to the limitations of this agreement, this
agreement shall be binding on, and inure to the benefit of, the executors,
administrators, heirs, legal representatives, successors and assigns of the
parties hereto.
CETUS CORPORATION
By:
----------------------
ACCEPTED
- -----------------------------
Optionee
<PAGE>
EXHIBIT 10.44
CHIRON
[LETTERHEAD]
March 26, 1997
Law Department
Novartis Pharma AG
CH-4002 Basel
Switzerland
Gentlemen:
I refer to that certain Agreement dated as of November 27, 1996 (the
"Agreement") between Chiron Corporation and Novartis Pharma AG (the successor
to the pharmaceutical business of Ciba-Geigy Ltd. following its consolidation
with Sandoz AG). We propose to amend the second sentence of Section E3,
entitled "DEBLOCKING", of the Agreement to read in full as follows:
"Each such payment shall be earned by Chiron on a quarter-by-quarter basis
in the year in which it is to be paid (and shall be reimbursable to Ciba if
and to the extent any such payment remains unearned at the effective date
that Chiron's obligations under sections A and D-1 hereof are terminated
pursuant to the following sentence."
If this Amendment correctly reflects our mutual understanding, please sign and
return to me a copy of this letter upon receipt of which, this Amendment shall
be effective as of March 27, 1997, for all purposes. Except as amended hereby,
the Agreement remains in full force and effect. Section 1, entitled
"Miscellaneous" of the Agreement shall apply to this Amendment.
Very truly yours,
CHIRON CORPORATION
/s/ William G. Green
By: William G. Green
Senior Vice President & General Counsel
Accepted and Agreed:
NOVARTIS PHARMA AG
By: /s/ Pierre E. Douaze By: /s/ Herbert Gut
-------------------- -------------------
Title: Head, Executive Committee Title: General Counsel
------------------------- ----------------
<PAGE>
EXHIBIT 11
CHIRON CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Earnings per share
Net income available for common shares and common stock
equivalent shares deemed to have a dilutive effect $ 15,336,000 $ 12,744,000
------------ ------------
------------ ------------
Primary earnings per share $ 0.09 $ 0.07
------------ ------------
------------ ------------
Fully diluted earnings per share $ 0.09 $ 0.07
------------ ------------
------------ ------------
Shares used in primary earnings per share computation:
Weighted average common shares outstanding 171,890,000 168,036,000
Weighted average dilutive incremental common shares
issuable from exercise of warrants 194,000 452,000
Weighted average dilutive incremental common shares
issuable under employee stock option programs 4,526,000 9,997,000
------------ ------------
Total common shares and common stock equivalent shares
deemed to have a dilutive effect 176,610,000 178,485,000
------------ ------------
------------ ------------
Shares used in fully diluted earnings per share computation:
Weighted average common shares outstanding 171,890,000 168,036,000
Weighted average dilutive incremental common shares
issuable from exercise of warrants 194,000 456,000
Weighted average dilutive incremental common shares
issuable under employee stock option programs 4,532,000 10,000,000
------------ ------------
Total common shares and common stock equivalent shares
deemed to have a dilutive effect 176,616,000 178,492,000
------------ ------------
------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S CONSOLIDATED BALANCE SHEET DATED MARCH 31, 1997 AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997<F6>
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997<F6>
<CASH> 99,335
<SECURITIES> 41,945<F1>
<RECEIVABLES> 327,306
<ALLOWANCES> 0
<INVENTORY> 181,286
<CURRENT-ASSETS> 699,319
<PP&E> 809,681
<DEPRECIATION> 227,795
<TOTAL-ASSETS> 1,678,415
<CURRENT-LIABILITIES> 467,573
<BONDS> 391,688<F2>
0
0
<COMMON> 1,724
<OTHER-SE> 788,010<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,678,415
<SALES> 251,129
<TOTAL-REVENUES> 330,283
<CGS> 108,332
<TOTAL-COSTS> 108,332
<OTHER-EXPENSES> 94,984<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,486
<INCOME-PRETAX> 22,228
<INCOME-TAX> 6,892
<INCOME-CONTINUING> 15,336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,336
<EPS-PRIMARY> 0.09<F5>
<EPS-DILUTED> 0.09<F5>
<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, NET OF CURRENT MATURITIES.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, CUMULATIVE
FOREIGN CURRENCY TRANSLATION ADJUSTMENT, UNREALIZED GAIN FROM INVESTMENTS
AND NOTES RECEIVABLE FROM STOCK SALES.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT AND OTHER OPERATING EXPENSES.
<F5>THE COMPANY DECLARED A 4-FOR-1 STOCK SPLIT EFFECTIVE AUG-02-1996. PRIOR
FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THIS RECAPITALIZATION.
<F6>ACTUAL FISCAL YEAR END WILL BE, AND PERIOD END WAS, DEC-28-1997 AND
MAR-30-1997, RESPECTIVELY. FOR PRESENTATION PURPOSES, DATES USED IN THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES REFER TO THE CALENDAR MONTH
END.
</FN>
</TABLE>
