<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1998
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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2754624
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4560 HORTON STREET, EMERYVILLE, CALIFORNIA 94608
(Address of principal executive offices) (Zip code)
(510) 655-8730
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
TITLE OF CLASS OUTSTANDING AT OCTOBER 31, 1998
Common Stock, $0.01 par value 178,653,178
<PAGE>
CHIRON CORPORATION
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997.........................3
Condensed Consolidated Statements of Operations for
the three and nine months ended September 30, 1998 and 1997......4
Condensed Consolidated Statements of Comprehensive Income
for the three and nine months ended September 30, 1998 and 1997..5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998 and 1997................6
Notes to Condensed Consolidated Financial Statements.............7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..36
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...........................................36
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................37
SIGNATURES...................................................................39
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
CHIRON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 80,468 $ 98,483
Short-term investments in marketable debt securities 111,969 84,588
------------- ------------
Total cash and short-term investments 192,437 183,071
Accounts receivable 348,015 344,044
Inventories 177,441 165,652
Deferred taxes 110,264 26,414
Assets held for sale (Note 2) 11,500 -
Other current assets 46,603 50,871
------------- ------------
Total current assets 886,260 770,052
Noncurrent investments in marketable debt securities 227,527 75,401
Property, plant, equipment and leasehold improvements, at cost:
Land and buildings 218,983 218,509
Laboratory, production and office equipment 431,204 422,278
Leasehold improvements 103,504 123,379
Construction in progress 67,090 67,355
------------- ------------
820,781 831,521
Less accumulated depreciation and amortization (306,505) (277,623)
------------- ------------
Net property, plant, equipment and leasehold improvements 514,276 553,898
Purchased technology, net 30,195 45,903
Other intangible assets, net 184,041 79,955
Investments in equity securities and affiliated companies 47,670 176,851
Other assets 70,480 66,418
------------- ------------
$ 1,960,449 $ 1,768,478
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 73,801 $ 79,339
Accrued compensation and related expenses 55,269 59,405
Short-term borrowings 25,618 154,700
Current portion of unearned revenue 19,660 13,361
Taxes payable 66,206 37,191
Other current liabilities 133,039 127,190
------------- ------------
Total current liabilities 373,593 471,186
Long-term debt 405,865 397,217
Other noncurrent liabilities 39,093 26,130
------------- ------------
Total liabilities 818,551 894,533
------------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock 1,782 1,757
Additional paid-in capital 1,956,802 1,853,591
Accumulated deficit (797,683) (961,986)
Accumulated other comprehensive loss (19,003) (18,808)
Notes receivable from stock sales - (609)
------------- ------------
Total stockholders' equity 1,141,898 873,945
------------- ------------
$ 1,960,449 $ 1,768,478
------------- ------------
------------- ------------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
3
<PAGE>
CHIRON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 112,813 $ 62,080 $ 278,091 $ 173,090
Equity in earnings of unconsolidated
joint businesses 21,255 28,849 51,493 82,835
Collaborative agreement revenues 24,278 36,394 73,110 92,370
Royalty and license fee revenues 49,756 12,966 81,325 37,105
Other revenues 7,868 6,136 28,128 28,168
--------- --------- --------- ---------
Total revenues 215,970 146,425 512,147 413,568
--------- --------- --------- ---------
Expenses:
Cost of sales 49,607 30,020 120,917 81,969
Research and development 69,437 68,008 202,376 193,864
Selling, general and administrative 40,170 25,132 102,057 72,880
Write-off of purchased in-process technologies - - 1,645 -
Impairment loss on long-lived assets - 31,300 - 31,300
Restructuring and reorganization charges (Note 3) 6,401 - 11,339 -
Other operating expenses 3,121 995 7,025 3,104
--------- --------- --------- ---------
Total expenses 168,736 155,455 445,359 383,117
--------- --------- --------- ---------
Income (loss) from operations 47,234 (9,030) 66,788 30,451
Gain on sale of assets (Note 4) 1,510 - 7,751 -
Interest expense (6,009) (8,068) (18,638) (23,710)
Other income, net 5,035 4,183 21,196 7,830
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes 47,770 (12,915) 77,097 14,571
Provision for income taxes 13,856 6,539 15,539 13,275
--------- --------- --------- ---------
Income (loss) from continuing operations 33,914 (19,454) 61,558 1,296
--------- --------- --------- ---------
Discontinued operations (Note 2):
Income (loss) from discontinued operations 5,001 6,773 (8,107) 17,101
Gain on disposal of discontinued operations 45,520 - 110,852 -
--------- --------- --------- ---------
Net income (loss) $ 84,435 $ (12,681) $ 164,303 $ 18,397
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings per share:
Income (loss) from continuing operations $ 0.19 $ (0.11) $ 0.35 $ 0.01
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) $ 0.47 $ (0.07) $ 0.93 $ 0.11
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted earnings per share:
Income (loss) from continuing operations $ 0.19 $ (0.11) $ 0.34 $ 0.01
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) $ 0.47 $ (0.07) $ 0.91 $ 0.10
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
4
<PAGE>
CHIRON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 84,435 $ (12,681) $ 164,303 $ 18,397
--------- --------- --------- ---------
Other comprehensive income (loss):
Foreign currency translation adjustment:
Change in foreign currency translation
adjustment during the period 7,893 (6,261) 6,910 (17,785)
Reclassification adjustment for loss
included in discontinued operations - - 2,087 -
--------- --------- --------- ---------
Net foreign currency translation adjustment 7,893 (6,261) 8,997 (17,785)
--------- --------- --------- ---------
Unrealized (loss) gain from investments:
Unrealized holding (losses) gains arising
during the period (2,375) 3,120 (8,744) (2,345)
Reclassification adjustment for net
loss (gain) included in net income
(loss) (net of tax benefit (provision)
of $311 and ($737) for the three months
ended September 30, 1998 and 1997,
respectively, and ($253) and ($730) for
the nine months ended September 30,
1998 and 1997, respectively) 553 (1,311) (448) (1,296)
--------- --------- --------- ---------
Net unrealized (loss) gain from investments (1,822) 1,809 (9,192) (3,641)
--------- --------- --------- ---------
Other comprehensive income (loss) 6,071 (4,452) (195) (21,426)
--------- --------- --------- ---------
Comprehensive income (loss) $ 90,506 $ (17,133) $ 164,108 $ (3,029)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
5
<PAGE>
CHIRON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 85,766 $ 83,710
--------- ---------
Cash flows from investing activities:
Purchases of investments in marketable debt securities (371,343) (58,523)
Proceeds from sale and maturity of investments in marketable debt securities 192,406 44,810
Capital expenditures (82,480) (49,904)
Proceeds from disposal of discontinued operations 298,939 -
Proceeds from sale of assets 38,312 -
Business acquired, net of cash acquired (54,770) -
Purchases of investments in equity securities and affiliated companies (6,000) (10,942)
Other, net (23,314) (10,884)
--------- ---------
Net cash used in investing activities (8,250) (85,443)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of short-term debt - 15,931
Repayment of short-term debt (129,800) -
Repayment of notes payable and capital leases (1,693) (31,237)
Proceeds from issuance of common stock 35,962 52,462
--------- ---------
Net cash (used in) provided by financing activities (95,531) 37,156
--------- ---------
Net (decrease) increase in cash and cash equivalents (18,015) 35,423
Cash and cash equivalents at beginning of the period 98,483 68,114
--------- ---------
Cash and cash equivalents at end of the period $ 80,468 $ 103,537
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
6
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information at September 30, 1998, and for the three and nine months
ended September 30, 1998 and 1997, is unaudited, but includes all normal
recurring adjustments which the management of Chiron Corporation ("Chiron" or
the "Company") believes to be necessary for fair presentation of the periods
presented. For the three months ended September 30, 1998, the Company's
results include a $3.3 million reduction in cost of sales resulting from a
change in estimated accruals created in prior periods. For the nine months
ended September 30, 1998, the Company's results also include a $6.0 million
reduction in cost of sales due to a change in estimated property tax accruals
created in prior periods; a $3.6 million reduction in restructuring and
reorganization charges due to a revised estimate of property and other
tax-related accruals recorded in 1995 in connection with the idling of the
Puerto Rico facility (see Note 4); and a $2.0 million reduction in selling,
general and administrative expenses due to changes in estimated accruals
created in prior periods. For the nine months ended September 30, 1997, the
Company's results include a $3.2 million reduction in second-quarter selling,
general and administrative expenses due to changes in estimated accruals
created in prior periods.
The condensed consolidated balance sheet amounts at December 31, 1997 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 28, 1997, which are included in the Annual Report on
Form 10-K filed by the Company with the Securities and Exchange Commission.
In the first quarter of 1998, Chiron completed the sale of its ophthalmic
business unit, Chiron Vision Corporation ("Chiron Vision"), to Bausch & Lomb
Incorporated (see Note 2). The accompanying Condensed Consolidated Statements of
Operations for all periods presented reflect the after-tax results of Chiron
Vision, and the gain on disposal thereof, as discontinued operations.
In the second quarter of 1998, Chiron acquired Hoechst AG's 51-percent
interest in Chiron Behring GmbH & Co ("Chiron Behring") in an acquisition
accounted for under the purchase method of accounting (see Note 5). Beginning
March 31, 1998, the financial position and results of operations of Chiron
Behring were consolidated with those of the Company.
In the third quarter of 1998, Chiron signed a definitive agreement whereby
Chiron agreed to sell its in vitro diagnostics business ("Chiron Diagnostics")
to Bayer Corporation (see Note 2). Under the terms of the agreement, Chiron
will retain (i) its blood testing business, including certain aspects of its
alliance with Gen-Probe, Incorporated, (ii) its joint business with
Ortho-Clinical Diagnostics, Inc., and (iii) its information technology
("informatics") business. The accompanying Condensed Consolidated Statements
of Operations reflect the after-tax results of Chiron Diagnostics, and the gain
on disposal thereof, as discontinued operations for all periods presented.
7
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 third quarters
of 1998 and 1997 represent the thirteen-week periods ended September 27, 1998
and September 28, 1997, respectively. For presentation purposes, dates used in
the condensed consolidated financial statements and notes thereto refer to the
fiscal month end.
INVENTORIES
Pharmaceutical inventories are stated at the lower of cost or market using
the average cost method or, in the case of certain vaccine products, using the
last-in, first-out ("LIFO") method. Diagnostic and ophthalmic (see Note 2), and
certain other vaccine products are valued at cost, using the first-in, first-out
("FIFO") method which is less than market value. Inventories consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods $ 58,683 $ 82,896
Work in process 74,776 47,417
Raw materials 43,982 35,339
-------------- -------------
$ 177,441 $ 165,652
-------------- -------------
-------------- -------------
</TABLE>
INCOME TAXES
The 1998 estimated annual tax provision is expected to be 26 percent of
pretax income from continuing operations, excluding restructuring and
reorganization charges, a financial reporting gain on sale of the Puerto Rico
facility (see Note 4), and $6.0 million of financial reporting income recognized
in the second quarter of 1998 due to a change in estimated property tax
accruals. The provision may be affected in future periods by changes in
management's estimates with respect to the Company's deferred tax assets and
other items affecting the overall tax rate. In 1998, restructuring and
reorganization charges recorded during the three and nine months ended September
30, 1998 are expected to create current additional income tax benefits of
approximately $0.8 million and $2.9 million, respectively. The benefits from
restructuring and reorganization charges are lower than the estimated annual tax
rate applied to such charges due to the timing of the deduction of a certain
portion of the charges for income tax purposes. The sale of the Company's Puerto
Rico facility, for which a financial reporting gain on sale of assets was
recorded during the nine months ended September 30, 1998, resulted in a tax
deductible loss for which a current additional income tax benefit of $1.5
million was recognized. These income tax benefits offset income tax expense
attributable to pretax income from continuing operations and, accordingly,
reduce the effective tax rate on continuing operations. Financial reporting
income of
8
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$6.0 million was recognized during the nine months ended September 30, 1998 from
a change in estimated property tax accruals; such accruals were not tax
deductible and, accordingly, the change of estimate resulted in no income tax
provision. During the three and nine months ended September 30, 1998, net
deferred tax assets of $7.2 million and $10.7 million, respectively, and
corresponding credits to deferred tax expense, were recognized through a
reduction in the valuation allowance, as they more likely than not will be
realized, for U.S. federal and state tax purposes. In addition, in the third
quarter of 1998, the Company reduced its valuation allowance for net deferred
tax assets by an additional $53.4 million as the deferred tax assets will more
likely than not be realized due to the planned sale of the Company's in vitro
diagnostics business. As these deferred tax assets resulted from tax benefits
related to the Company's stock option plans, the corresponding credit was
recorded as additional paid-in capital. The recognition of such net deferred tax
assets is based on management's estimates of future taxable income in the United
States, including the anticipated taxable gain on the planned disposal of the
Company's in vitro diagnostics business. Such estimates are subject to change
based on future events and, accordingly, the amount of deferred tax assets
recognized may increase or decrease from period to period.
Income tax expense for the three and nine months ended September 30, 1997
was based on an estimated annual effective tax rate on pretax income from
continuing operations of approximately 29 percent, excluding the charge for the
impairment loss on long-lived assets which did not create a corresponding income
tax benefit at that time. The actual 1997 annual effective tax rate of 24
percent, exclusive of the impact of the impairment loss in the third quarter,
reflects a change in estimate of the mix of foreign versus domestic profits,
benefits of certain tax credits and loss carryforwards, and anticipated foreign
sales corporation benefits.
PER SHARE DATA
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share" ("SFAS 128"), basic earnings per share data is based
on the weighted-average number of common shares outstanding during the period.
Diluted earnings per share data is based on the weighted-average number of
common and dilutive potential common shares outstanding. Dilutive potential
common shares result from (i) the assumed exercise of outstanding stock options,
warrants and equivalents thereof that have a dilutive effect when applying the
treasury stock method; and (ii) performance units to the extent that dilutive
shares are assumed to be issuable if the contingency and reporting periods ended
on the same date. All prior period per share data has been restated to conform
with the provisions of SFAS 128 subsequent to its adoption by the Company in the
fourth quarter of 1997.
9
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of the denominators of Chiron's earnings per common share
computations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Weighted-average common shares
outstanding 177,820 174,221 177,086 172,930
Effect of dilutive securities:
Options and equivalents 1,937 - 2,447 4,393
Warrants 135 - 170 205
Performance units - - - 41
----------- ----------- ----------- -----------
Weighted-average common shares
outstanding plus assumed conversions 179,892 174,221 179,703 177,569
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
For the three months ended September 30, 1998 and 1997, options to purchase
14,717,000 and 5,159,000 shares, respectively, of common stock were outstanding
on a weighted-average basis but were excluded from the computation of diluted
earnings per common share because the options' exercise prices were greater than
the respective average market prices of the underlying stock of $16.96 and
$21.46 in the third quarters of 1998 and 1997, respectively.
For the nine months ended September 30, 1998 and 1997, options to purchase
13,821,000 and 7,030,000 shares, respectively, of common stock were outstanding
on a weighted-average basis but were excluded from the computation of diluted
earnings per common share because the options' exercise prices were greater than
the respective average market prices of the underlying stock of $18.35 and
$20.00 for the nine months ended September 30, 1998 and 1997, respectively.
For the three and nine months ended September 30, 1998 and 1997, an
insignificant number of performance units contingently payable in shares of
common stock was also excluded from the computation of diluted earnings per
common share based on the performance goals which were then unmet at September
30, 1998 and 1997.
A total of 12,026,000 shares of common stock issuable upon conversion of
the Company's convertible subordinated debentures, having a weighted-average
conversion price of $29.43 per share, has been excluded from the computations of
diluted earnings per common share for all periods presented since its inclusion
would be antidilutive.
COMPREHENSIVE INCOME
In accordance with SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"), the Company has displayed the components of "Other comprehensive
income (loss)" and "Comprehensive income (loss)," in the accompanying
10
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Condensed Consolidated Statements of Comprehensive Income. Unless otherwise
noted, the components of the Company's "Other comprehensive income (loss)" and
"Comprehensive income (loss)," have no tax effect as the Company makes no
provision for U.S. income taxes applicable to (i) undistributed earnings of
foreign subsidiaries that are indefinitely reinvested in foreign operations; or
(ii) unrealized holding gains or losses from investments that are recorded as a
component of equity. All prior period data has been reclassified to conform with
the provisions of SFAS 130.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes standards for reporting financial and descriptive
information about an enterprise's operating segments in its annual financial
statements and selected segment information in interim financial reports.
Comparative information for interim periods of fiscal 1998 will be restated to
conform with the provision of SFAS 131 and will be reported in the Company's
interim financial statements in fiscal 1999. Application of the disclosure
requirements of SFAS 131 will have no impact on the Company's consolidated
financial position, results of operations or earnings per share data as
currently reported.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is effective for all quarters of fiscal years beginning after June 15,
1999. SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In accordance with SFAS 133, an entity is
required to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. The Company has not determined the
timing or method of adoption and is currently evaluating the effect that
implementation of SFAS 133 will have on its results of operations and financial
position.
NOTE 2--DISCONTINUED OPERATIONS
In accordance with Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," Chiron Diagnostics and Chiron
11
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)
Vision are reported as discontinued operations for all periods presented in the
accompanying Condensed Consolidated Statements of Operations.
On September 17, 1998 Chiron and Bayer Corporation ("Bayer") entered into a
definitive agreement pursuant to which Chiron has agreed to sell its in vitro
diagnostics business to Bayer for approximately $1,013.8 million in cash,
subject to certain post-closing adjustments. The consummation of the transaction
is subject to standard closing conditions, including receipt of required
regulatory approvals, and is expected to occur in the fourth quarter of 1998.
The agreement provides for customary post-closing indemnities.
Under the terms of the agreement, Chiron will retain (i) its blood testing
business, including certain aspects of its alliance with Gen-Probe,
Incorporated, (ii) its joint business with Ortho-Clinical Diagnostics, Inc.,
and (iii) its information technology ("informatics") business. Chiron also will
retain its hepatitis and retrovirus patents and know-how.
Upon the closing of the sale of Chiron Diagnostics, Chiron and Bayer intend
to enter into certain agreements related to the licensing of certain patent
rights and know-how owned or controlled by Chiron. In addition, on September 25,
1998 Chiron and Bayer signed a technology license and option agreement for
Bayer's use and distribution of software and related systems and services
developed by Chiron's informatics business.
Management estimates that a net gain will result from disposal of Chiron
Diagnostics. In accordance with Emerging Issues Task Force Issue No. 93-17,
"Recognition of Deferred Tax Assets for a Parent Company's Excess Tax Basis in
the Stock of a Subsidiary That Is Accounted for as a Discontinued Operation"
("EITF 93-17") and SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"), in
the third quarter of 1998, Chiron reduced its valuation allowance related to
Chiron Diagnostics' domestic and foreign deferred tax assets by $45.5 million as
the definitive agreement with Bayer makes it more likely than not that the
deferred tax assets will be realized. The corresponding credit is reflected in
the accompanying Condensed Consolidated Statements of Operations as "Gain on
disposal of discontinued operations."
On December 29, 1997, Chiron completed the sale of all of the outstanding
capital stock of Chiron Vision, a wholly owned subsidiary, to Bausch & Lomb
Incorporated ("B&L") for approximately $300.0 million in cash, subject to
certain post-closing adjustments. The sale was completed under the terms of a
Stock Purchase Agreement, dated as of October 21, 1997, between Chiron and B&L.
Chiron Vision's cash and cash equivalents totaling $2.7 million, certain Chiron
Vision real estate assets (the "real estate assets") with a carrying value of
$25.1 million and Chiron
12
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)
Vision's future noncancelable operating lease costs totaling $1.1 million were
retained by the Company upon completion of the sale. Additionally, the Company
agreed to provide customary indemnities under the terms of the agreement.
For a period of three years following the completion of the sale, Chiron
Vision has the right to use a portion of the real estate assets which were
occupied at closing on a rent-free basis. As of September 30, 1998, the real
estate assets are recorded in the accompanying Condensed Consolidated Balance
Sheet as "Assets held for sale." In the first quarter of 1998, the Company
recorded a $13.6 million adjustment to record the real estate assets at their
estimated fair value, determined on the basis of independent appraisals, less
cost to sell. This adjustment was recorded as a reduction to the "Gain on
disposal of discontinued operations" in the accompanying Condensed
Consolidated Statements of Operations for the nine months ended September 30,
1998.
Chiron Diagnostics recognized total revenues of $134.6 million and
$412.8 million for the three and nine months ended September 30, 1998,
respectively. Chiron Diagnostics and Chiron Vision collectively recognized
total revenues of $191.1 million and $588.0 million for the three and nine
months ended September 30, 1997, respectively. "Income (loss) from
discontinued operations" in the accompanying Condensed Consolidated
Statements of Operations is reported net of a provision for income taxes of
less than $0.1 million for the three months ended September 30, 1998 and an
income tax benefit of $3.0 million for the three months ended September 30,
1997. For the nine months ended September 30, 1998 and 1997, "Income (loss)
from discontinued operations" is reported net of a provision for income taxes
of $3.0 million and $4.2 million, respectively. Additionally, "Income (loss)
from discontinued operations" includes approximately $1.2 million of net
income from operations recognized by Chiron Diagnostics from September 17,
1998 to September 27, 1998. "Gain on disposal of discontinued operations" in
the accompanying Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1998 is reported net of a provision for income
taxes of $31.2 million on the disposal of Chiron Vision and the Chiron
Diagnostics' deferred tax benefit of $45.5 million described above.
For the three months ended September 30, 1998, basic and diluted earnings
per common share from discontinued operations was $0.28. For the three months
ended September 30, 1997, basic and diluted earnings per common share from
discontinued operations was $0.04. For the nine months ended September 30, 1998,
basic and diluted earnings per common share from discontinued operations were
$0.58 and $0.57, respectively. For the nine months ended September 30, 1997,
basic and diluted earnings per common share from discontinued operations were
$0.10 and $0.09, respectively.
13
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)
The accompanying Condensed Consolidated Balance Sheets include the net
assets of discontinued operations, including the Chiron Vision real estate
assets, as follows:
<TABLE>
<CAPTION> SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable, net $ 152,928 $ 191,701
Inventories 95,293 122,160
Assets held for sale 11,500 -
Property, plant, equipment and leasehold
improvements, net 214,138 254,001
Purchased technology, net - 25,068
Other intangible assets, net 15,687 53,925
Accounts payable and other current liabilities (43,317) (113,518)
Other assets and liabilities, net (88,798) (71,157)
-------------- -------------
$ 357,431 $ 462,180
-------------- -------------
-------------- -------------
</TABLE>
NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES
For the first nine months of 1998, Chiron recognized net restructuring and
reorganization charges of $11.3 million, which included a third-quarter charge
of $6.4 million, a second-quarter benefit of $2.6 million, and a first-quarter
charge of $7.5 million. The third-quarter charge of $6.4 million consisted of
$3.8 million of termination and other employee-related costs in connection with
the planned elimination of 46 positions in sales, marketing and other
administrative, manufacturing, and research and development functions. The
elimination of these positions is due primarily to the planned integration of
the Company's worldwide vaccines operations as well as the Company's ongoing
rationalization of business operations. In connection with the plan of
termination, 9 employees were terminated during the quarter ended September 30,
1998 and benefits of $0.2 million were paid and charged against the accrual. The
remaining $2.6 million of third-quarter restructuring and reorganization charges
resulted from facility-related costs of which $0.8 million was charged against
the accrual during the quarter. At September 30, 1998, the liability associated
with third-quarter restructuring and reorganization charges was $5.4 million.
The second-quarter benefit of $2.6 million consisted of a $3.6 million
benefit due to a revised estimate of property and other tax-related accruals
recorded in 1995 in connection with the idling of the Puerto Rico facility, and
charges of $1.0 million consisting of facility-related costs. At September 30,
1998, the liability associated with second-quarter charges was $0.3 million.
The first-quarter charge of $7.5 million consisted of $5.8 million of
termination and other employee-related costs in connection with the planned
elimination of 129 positions in sales, marketing and other administrative,
manufacturing, and research and development functions. The elimination of these
positions is due primarily to the Company's ongoing rationalization of business
operations related to the closure of the Company's Puerto Rico and St. Louis
facilities. In
14
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES (CONTINUED)
connection with the plan of termination, all 129 employees were terminated
during the first nine months of 1998 and benefits of $3.4 million were paid
and charged against the accrual. The remaining $1.7 million consisted of
facility-related costs of which $1.5 million was charged against the accrual
during the first nine months of 1998. At September 30, 1998, the liability
associated with the first-quarter charge was $2.6 million.
The liabilities related to restructuring and reorganization charges are
expected to be substantially settled within twelve months of accruing the
related charges. The Company anticipates that it will incur future
restructuring and reorganization expenses in the fourth quarter of 1998 as it
continues to create a simpler, more efficient operating structure for the
organization.
NOTE 4--GAIN ON SALE OF ASSETS
In March 1998, the Company committed to plans to sell its idle
pharmaceutical fill and finishing facility in Puerto Rico and its
manufacturing facility in St. Louis, Missouri and the related machinery and
equipment for each facility. These plans were made in response to Chiron's
ongoing analysis of manufacturing capacity relative to its projected needs.
The resulting adjustment in the first quarter of 1998 to record these assets
at the lower of their aggregate carrying amount or estimated fair value,
determined on the basis of independent appraisals, less cost to sell, was
insignificant.
In August 1998, the Company sold its St. Louis facility and related
machinery and equipment assets to Genetics Institute Inc. for $19.8 million
in cash. The sale of the St. Louis facility resulted in a net gain of $1.5
million, which was included in the "Gain on sale of assets" in the
accompanying Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 1998. At the time of sale, the carrying
amount of the St. Louis facility was $18.3 million. Included in the Company's
"Income from operations" in the accompanying Condensed Consolidated
Statements of Operations for the nine months ended September 30, 1998 were
$3.2 million of operating expenses incurred through the date of disposal.
Operating expenses incurred during the quarter ended September 30, 1998 were
insignificant. In 1997, operating expenses were $2.7 million and $9.3 million
for the three and nine months ended September 30, 1997, respectively.
In June 1998, the Company sold its Puerto Rico facility and related
machinery and equipment assets to IPR Pharmaceuticals, Inc. for $18.5 million
in cash. The sale of the Puerto Rico facility resulted in a net gain of $6.2
million, which was included in the "Gain on sale of assets" in the
accompanying Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1998. At the time of sale, the carrying amount of
the Puerto Rico facility was $11.1 million. Included in the Company's "Income
from operations" in the accompanying Condensed Consolidated Statements of
Operations for the nine months ended September 30, 1998, were $2.1 million of
operating expenses incurred through the date of disposal. In 1997, these
operating expenses were $2.1 million and $6.3 million for the three and nine
months ended September 30, 1997, respectively.
15
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 5--AGREEMENT WITH HOECHST AG
Effective July 1, 1996, Chiron purchased a 49-percent interest in the human
vaccine business of Behringwerke AG, which subsequently merged into its parent
company, Hoechst AG. During the period of mutual ownership and through the first
quarter of 1998, Chiron and Hoechst AG operated the vaccine business as a joint
venture. Chiron accounted for its interest under the equity method and
recognized $2.4 million for the three months ended March 31, 1998, and $3.5
million and $9.7 million for the three and nine months ended September 30, 1997,
respectively, as components of "Equity in earnings of unconsolidated joint
businesses" in the accompanying Condensed Consolidated Statements of Operations.
Summarized statement of operations information for Chiron Behring during the
period of mutual ownership and through the first quarter of 1998, which excludes
Chiron's amortization of intangible assets recorded in the July 1996
acquisition, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED
MARCH 31, SEPT. 30, SEPT. 30,
1998 1997 1997
------------- ------------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales $ 36,356 $ 51,683 $ 135,721
Gross profit $ 21,075 $ 18,215 $ 72,604
Income from continuing operations before
extraordinary items and cumulative effect
of a change in accounting principle $ 6,213 $ 10,389 $ 29,566
Net income $ 6,213 $ 10,389 $ 29,566
</TABLE>
Prior to December 1997, Chiron's share of the joint venture's results were
reported on a one-month lag. As a result, Chiron's equity in earnings of Chiron
Behring for the third quarter and first nine months of 1997 was calculated
based, in part, on the joint venture's net income for the three and nine months
ended August 31, 1997 of $9.0 million and $23.2 million, respectively, rather
than the net income of $10.4 million and $29.6 million for the three and nine
months ended September 30, 1997, respectively, reflected above.
On March 31, 1998, Chiron acquired Hoechst AG's 51-percent interest in
Chiron Behring. The acquisition was accounted for under the purchase method of
accounting. The purchase price of approximately $113.1 million was allocated to
the acquired assets and liabilities assumed based upon their estimated fair
value on the acquisition date. In connection with the acquisition, liabilities
were assumed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash acquired $ 57,119
Fair value of all other assets acquired 206,922
Carrying value of original investment in Chiron Behring (117,157)
Cash paid (111,889)
Acquisition costs (1,180)
-------------
Liabilities assumed $ 33,815
-------------
-------------
</TABLE>
16
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 5--AGREEMENT WITH HOECHST AG (CONTINUED)
At the time of acquisition, Chiron recognized as an expense, the amount of
the purchase price allocated to purchased in-process technologies. The resulting
charge against earnings of approximately $1.6 million was included in the
Company's results of operations for the nine months ended September 30, 1998.
Other purchased intangible assets of approximately $135.0 million, including
goodwill, trademarks, patents and customer list, are being amortized over their
estimated useful lives of 4 to 18 years on a straight-line basis. The results of
operations of Chiron Behring were included in Chiron's consolidated operating
results beginning in the second quarter of 1998.
The following unaudited pro forma information presents the results of
continuing operations of Chiron and Chiron Behring for the three months ended
September 30, 1997 and the nine months ended September 30, 1998 and 1997, with
pro forma adjustments as if Chiron's acquisition of the remaining 51-percent
interest in Chiron Behring had been consummated as of January 1, 1997. Given the
Company's acquisition of the remaining 51-percent interest in, and consolidation
of, Chiron Behring effective March 31, 1998, pro forma information for the three
months ended September 30, 1998 is not applicable. The pro forma information
does not purport to be indicative of what would have occurred had the
acquisition been made as of those dates or of results which may occur in the
future. In addition, the pro forma information for the three months ended
September 30, 1997 and the nine months ended September 30, 1998 and 1997, does
not include the write-off of purchased in-process technologies of $1.6 million
(the "non-recurring charge") related to the acquisition of the remaining
51-percent interest in Chiron Behring, which is reflected in the Company's
results as reported for the nine months ended September 30, 1998. The unaudited
pro forma information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30,
1997 1998 1997
------------- ---------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Total revenues $ 194,641 $ 546,108 $ 539,572
Income (loss) from continuing operations
before the non-recurring charge $ (12,681) $ 63,688 $ 14,483
Pro forma income (loss) per share from continuing
operations before the non-recurring charge:
Basic $ (0.07) $ 0.36 $ 0.08
Diluted $ (0.07) $ 0.35 $ 0.08
</TABLE>
As discussed in Note 1, 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. Chiron
Behring, however, is accounted for on a calendar year basis, which may not
coincide with the Company's quarter-end and year-end periods.
17
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 6--LICENSE FEE REVENUES
In the third quarter of 1998, the Company issued a non-exclusive license
related to certain technologies used to produce recombinant antigens for human
vaccine products. In connection with this license agreement, the Company
received a one-time license issuance fee of $24.0 million which was included in
"Royalty and license fee revenues" in the accompanying Condensed Consolidated
Statements of Operations for the three and nine months ended September 30, 1998.
The license agreement also provides Chiron with future royalties on sales of
products using the specified technologies.
NOTE 7--AGREEMENT WITH INTERNATIONAL BUSINESS MACHINES CORPORATION
Effective July 1, 1998, Chiron and International Business Machines
Corporation ("IBM") executed a ten-year information technology services
agreement. Under this agreement, IBM will provide Chiron with a full range of
information services, including designing and deploying a company-wide
distributed network system, establishing a comprehensive help-desk operation,
and developing a standardized desk-top platform using IBM workstations. Chiron
may terminate this agreement beginning July 1, 1999 subject to certain
termination charges. Through July 1, 1999, Chiron's payments to IBM will total
$19.3 million. If Chiron does not terminate this agreement prior to expiration,
payments to IBM are expected to be approximately $138.8 million in the
aggregate. Payments to IBM are subject to adjustment depending upon the levels
of services and infrastructure equipment provided by IBM.
NOTE 8--PURCHASE OF MANUFACTURING AND ADMINISTRATIVE FACILITIES
On July 16, 1998, the Company completed the purchase of its manufacturing
and administrative facilities in Siena, Italy, which were previously under
lease. The net purchase price of 34.8 billion Italian lira (approximately $21.4
million), is included as components of "Land and buildings" and "Leasehold
improvements" in the Company's consolidated balance sheet at September 30, 1998.
NOTE 9--AGREEMENT WITH GEN-PROBE, INCORPORATED
In the third quarter of 1998, Chiron and Gen-Probe, Incorporated
("Gen-Probe") a wholly owned subsidiary of Chugai Pharmaceutical Co., Ltd.,
signed an agreement to form a strategic alliance to develop, manufacture and
market nucleic acid probe assay systems for blood testing and certain areas
of diagnostics. Under the terms of the agreement, Chiron will market and sell
products that utilize the Company's intellectual property relating to
hepatitis C ("HCV") and human immunodeficiency virus ("HIV") and Gen-Probe's
patented transcription-mediated amplification, target capture, hybridization
protection assay and dual kinetic assay technologies. In addition, the
technology rights acquired from Gen-Probe are anticipated to be utilized
across a broad base of marker technology within the Company's blood testing
and diagnostics businesses. In exchange for the rights to Gen-Probe's
technology, Chiron paid $10.0 million upon signing the agreement, which was
recorded as a component of "Other intangible assets, net" in the Company's
consolidated balance sheet at September 30, 1998. Chiron's future milestone
payment obligations to Gen-Probe consist of a $15.0
18
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 9--AGREEMENT WITH GEN-PROBE, INC. (CONTINUED)
million payment due within 30 days after Gen-Probe's submission of an
investigational new drug application to the Food and Drug Administration
("FDA") for its automated HCV/HIV assay for blood testing and another $10.0
million upon Gen-Probe's receipt of marketing approval from the FDA for such
products. As part of the sale of Chiron Diagnostics, Chiron will transfer to
Bayer certain technologies obtained in the Gen-Probe agreement as it relates to
in vitro diagnostics and will retain the technologies related to blood testing.
As a result, upon the completion of the sale of Chiron Diagnostics, Bayer will
assume $6.5 million of the $15.0 million obligation discussed above. The
agreement with Gen-Probe also provides certain provisions for additional cost
sharing and royalties upon the commercialization of specified products.
NOTE 10--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 any of these
matters will have a material adverse effect upon the Company's consolidated
financial position and annual results of operations and cash flows.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CHIRON CORPORATION
OVERVIEW
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS.
THESE INCLUDE STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, FUTURE
EVENTS OR PERFORMANCE AND ALL OTHER STATEMENTS WHICH ARE OTHER THAN STATEMENTS
OF HISTORICAL FACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING WORDS
SUCH AS "BELIEVES," "ANTICIPATES," "EXPECTS," "ESTIMATES", "PROJECTS", "WILL,"
"MAY," "MIGHT," AND WORDS OF A SIMILAR NATURE. FORWARD-LOOKING STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR
OUTCOMES TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS. IN ADDITION TO OTHER FACTORS AND MATTERS DISCUSSED ELSEWHERE HEREIN,
SOME OF THE IMPORTANT FACTORS WHICH, IN THE VIEW OF CHIRON CORPORATION ("CHIRON"
OR THE "COMPANY"), COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE EXPRESSED IN
THE FORWARD-LOOKING STATEMENTS ARE DISCUSSED UNDER THE CAPTION "FACTORS THAT MAY
AFFECT FUTURE OPERATING RESULTS." THE FORWARD-LOOKING STATEMENTS CONTAINED IN
THIS REPORT REFLECT MANAGEMENT'S CURRENT BELIEFS AND EXPECTATIONS ON THE DATE OF
THIS REPORT; THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY ANNOUNCE ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT FACTS OR CIRCUMSTANCES
OF WHICH MANAGEMENT BECOMES AWARE AFTER THE DATE HEREOF.
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, 7A AND 8, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK" AND "FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA," RESPECTIVELY, OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 28, 1997.
Chiron is a leading biotechnology company that develops, manufactures and
markets human healthcare products for the prevention and treatment of disease
utilizing innovations in biology and chemistry. Chiron participates in three
human healthcare markets: (i) therapeutics, with an emphasis on oncology,
serious infectious diseases and cardiovascular diseases; (ii) adult and
pediatric vaccines; and (iii) blood testing. Chiron also conducts research and
development in the fields of recombinant technology, gene therapy, vaccines,
small molecule therapeutics and genomics.
On December 29, 1997, Chiron completed the sale of its ophthalmic
business unit, Chiron Vision Corporation ("Chiron Vision"), to Bausch & Lomb
Incorporated ("B&L") and on September 17, 1998, Chiron and Bayer Corporation
("Bayer") entered into a definitive agreement pursuant to which Chiron agreed
to sell its in vitro diagnostics business to Bayer. Under the terms of the
agreement, Chiron will retain (i) its blood testing business, including
certain aspects of its alliance with Gen-Probe, Incorporated, (ii) its joint
business with Ortho-Clinical Diagnostics, Inc., and (iii) its information
technology ("informatics") business. The sale is subject to standard closing
conditions and is anticipated to be completed by the end of 1998. As a result
of these transactions, the Company's condensed consolidated statements of
operations reflect the after-tax results of Chiron Diagnostics and Chiron
Vision, and the related gain on disposal thereof, as discontinued operations
for all periods presented.
20
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ---------------------
1998 1997 1998 1997
--------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Therapeutic products $ 46,827 $ 40,834 $144,119 $105,610
Vaccine products 60,673 16,386 119,114 52,096
Blood testing products 5,313 4,860 14,858 15,384
-------- -------- -------- --------
$112,813 $ 62,080 $278,091 $173,090
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Sales of certain of the Company's vaccine products, particularly flu
vaccine, are seasonal, with higher sales in the 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.
THERAPEUTIC PRODUCTS Sales of Proleukin-Registered Trademark-
(aldesleukin, interleukin-2) increased $5.1 million and $15.8 million in the
third quarter and first nine months of 1998, respectively, as compared with the
corresponding periods in 1997, due to (i) domestic sales price increases, and
(ii) volume increases attributable to continued growth in existing indications
and the expanded use of Proleukin-Registered Trademark- for the new indication
of metastatic melanoma. Also contributing to the overall increase in
Proleukin-Registered Trademark- sales was an increase in vials sold in European
markets and the geographic expansion of Proleukin-Registered Trademark- into
other countries.
Under the terms of a development and supply agreement with Schering AG,
Germany ("Schering AG"), and its U.S. affiliate, Berlex Laboratories, Inc.
("Berlex"), Chiron manufactures Betaseron-Registered Trademark- (Interferon
beta-1b) for Berlex and Schering AG. Under the terms of the agreement, Chiron
earns an initial partial payment for Betaseron-Registered Trademark- upon
shipment to Berlex and Schering AG and a subsequent secondary payment for
Betaseron-Registered Trademark- upon net sales of the product to patients.
Beginning July 1997, the terms of payment changed, with a larger portion due
when sales are realized rather than at the time of initial shipment. The
increase in Betaseron-Registered Trademark- product sales in the third quarter
and first nine months of 1998 of $1.0 million and $4.2 million, respectively,
reflects the change in payment terms described above and an increase in vials
sold to Berlex and Schering AG. The timing of future shipments to Berlex and
the related revenue may vary based upon the inventory management practices of
Berlex. A contractual decrease in the total payments received by Chiron for the
manufacture of Betaseron-Registered Trademark- will occur in October 1998. This
contractual decrease is not anticipated to impact Betaseron-Registered
Trademark-product sales until December 1998 when the secondary revenues are
recognized. Secondary revenues earned by Chiron represent only part of the
total revenues derived from Betaseron-Registered Trademark- sales by Berlex and
Schering AG.
Revenues derived from PDGF (recombinant human platelet-derived growth
factor -rhPDGF-BB), which were first recognized in the third quarter of 1997,
contributed $7.1 million and $25.0 million to Chiron's net product sales in
the third quarter and first nine months of 1998, respectively. PDGF is the
active ingredient in
21
<PAGE>
Johnson & Johnson's Regranex-Registered Trademark- (becaplermin) Gel, a
treatment for diabetic foot ulcers. Of the total PDGF revenues recognized
during the first nine months of 1998, approximately $10.5 million resulted
from a contractual price adjustment primarily related to Chiron's 1997 sales,
and approximately $14.5 million was attributable to 1998 shipments. Future
price adjustments are not expected to be at levels commensurate with those in
the first nine months of 1998. As PDGF is the first product of its kind, the
Company believes it will take time for the market to fully develop. Although
sales of Regranex-Registered Trademark- are growing and end user demand
appears strong, Chiron's sales to date have primarily filled Johnson &
Johnson's inventory. As a result, no sales of PDGF to Johnson & Johnson are
expected in the first half of 1999.
VACCINE PRODUCTS Vaccine product sales consist principally of sales by
Chiron Behring GmbH & Co ("Chiron Behring") and by Chiron's Italian
subsidiary in Germany, Italy and certain other international markets. Vaccine
product sales in the third quarter and first nine months of 1998 increased by
$44.3 million and $67.0 million, respectively, as compared with the
corresponding periods in 1997, due to Chiron's acquisition of the remaining
51-percent interest in, and consolidation of, Chiron Behring effective March
31, 1998. Decreased sales of the Company's oral polio vaccines in the third
quarter and first nine months of 1998 as compared with the same periods of
the prior year were largely offset by increased vaccine sales of haemophilus
influenzae type B ("HIB"), which largely began in 1998. The resolution of the
supply constraints related to the Company's oral polio vaccine experienced in
1997, and through much of 1998, resulted in an increase in third quarter
sales as compared with the first and second quarters of 1998. Further
increases in sales of oral polio are expected in the fourth quarter of 1998.
The Company anticipates increased competitive pressures related to many of
its vaccine products due to the introduction of competitive products into the
market.
CHIRON-ORTHO JOINT BUSINESS Equity in earnings of unconsolidated joint
businesses consists substantially of Chiron's one-half interest in the pretax
operating earnings of its joint immunodiagnostic and blood testing business
with Ortho-Clinical Diagnostics, Inc. ("Ortho"), a Johnson & Johnson company.
The joint business sells a full line of tests required to screen blood for
hepatitis viruses and retroviruses, and provides supplemental tests and
microplate-based instrument systems to automate test performance and data
collection. The joint business also holds the immunodiagnostic rights to
Chiron's hepatitis and retrovirus technology and receives royalties from
several companies, including Abbott Laboratories, Pasteur Sanofi Diagnostics
and Genelabs Diagnostic, Inc., for their sales of certain tests. Chiron has
agreed to sell its immunodiagnostic instrument business to Bayer subject to
the rights of Ortho with respect to hepatitis and retrovirus immunoassays.
In the third quarter and first nine months of 1998, Chiron's share of the
pretax operating earnings of the joint business decreased by $2.0 million and
$20.8 million, respectively, as compared with the corresponding periods in 1997.
The decrease between quarters is due primarily to lower foreign sales, offset in
part, by lower research and development spending in 1998 as compared with 1997.
The operating earnings of the joint business are recorded by Chiron on a
one-month lag based upon estimates supplied by Ortho, which are subject to a
final adjustment 90
22
<PAGE>
days after the end of each calendar year (the "final annual accounting"). With
respect to the first nine months of 1998, the final annual accounting for 1997
resulted in a $4.1 million charge as compared with $0.8 million of income in
1997 from the final accounting for 1996. In addition, other items contributing
approximately $12.1 million to the decrease in earnings for the nine months
ended September 30, 1998 as compared with the same period in 1997 were (i)
lower foreign profits of the joint business; (ii) certain one-time contract
termination fees; (iii) the adverse impact of changes in foreign currency
exchange rates between years; and (iv) certain joint business asset write-offs
related to the implementation of certain processes to comply with stricter Food
and Drug Administration ("FDA") guidelines mandated throughout the industry.
AGREEMENT WITH HOECHST AG From the date of acquisition through the first
quarter of 1998, equity in earnings of unconsolidated joint businesses included
Chiron's 49-percent share of the after-tax operating results of Chiron Behring,
which was acquired in July 1996. Chiron's share of earnings of the joint
venture, including amortization of intangibles, was $2.4 million in the first
quarter of 1998 and $3.5 million and $9.7 million in the third quarter and first
nine months of 1997, respectively. Refer to Note 5 of NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
In the second quarter of 1998, Chiron acquired Hoechst AG's 51-percent
interest in Chiron Behring. The acquisition of Chiron Behring was accounted for
under the purchase method of accounting. The purchase price of approximately
$146.9 million, which included approximately $1.2 million of acquisition costs,
$33.8 million of liabilities assumed, and $111.9 million of cash paid, was
allocated to the acquired assets and liabilities assumed based upon their
estimated fair value on the acquisition date. At the time of acquisition, Chiron
recognized as an expense, the amount of the purchase price allocated to
purchased in-process technologies. The resulting charge against earnings of
approximately $1.6 million was included in the Company's results of operations
for the nine months ended September 30, 1998. Other purchased intangible assets
of approximately $135.0 million, including goodwill, trademarks, patents and
customer list, are being amortized over their estimated useful lives of 4 to 18
years on a straight-line basis. The results of operations of Chiron Behring were
included in Chiron's consolidated operating results beginning in the second
quarter of 1998.
COLLABORATIVE AGREEMENT REVENUES Collaborative agreement revenues consist
of fees received for research services as they are performed, proceeds from
sales of product rights, proceeds from sales of biological materials to research
partners for preclinical and clinical testing, and fees received upon attainment
of benchmarks specified in the related research agreements. Collaborative
agreement revenues for the third quarter and first nine months of 1998 decreased
$12.2 million and $19.3 million, respectively, as compared with the same periods
of 1997, due largely to decreased revenues recognized under collaborative
agreements with (i) Japan Tobacco for combinatorial chemistry technologies used
for drug discovery; (ii) Green Cross of Japan for human immunodeficiency virus
("HIV") gene therapy research and clinical development; and (iii) Janssen
Pharmaceutica, N.V. for the development and use of combinatorial libraries. In
light of these decreases and unless new collaborative arrangements are made,
management does not expect future collaborative agreement revenues to be at
levels commensurate with that in 1997.
Collaborative agreement revenues also include research and development
funding from Novartis AG ("Novartis"). Under a December 1995 limited liability
company agreement, as amended, Chiron recognized collaborative agreement
revenues of $15.6 million and $16.5 million for the third quarters of 1998 and
1997, respectively. For the first nine months of 1998 and 1997, Chiron
recognized $47.2 million and $50.3 million, respectively. Future revenues under
the December 1995 limited liability company agreement, as amended, are not
expected to exceed
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$62.3 million in 1998 and $50.3 million (plus any unused portion of the
funding limit for 1998) in 1999.
ROYALTY AND LICENSE FEE REVENUES Royalty and license fee revenues consist
of license fees related to certain technologies, royalty revenues resulting
from Schering AG's sales of interferon beta in Europe under the name
Betaferon-Registered Trademark-, and, beginning in the second quarter of 1998,
royalty revenues generated by Chiron Behring. In the third quarter of 1998 and
1997, royalty and license fee revenues were $49.8 million and $13.0 million,
respectively. The overall increase in royalty and license fee revenues is
largely due to (i) a $24.0 million license fee related to certain technologies
used in human vaccine products (see discussion below); (ii) $3.4 million
generated by Chiron Behring, consisting primarily of ongoing royalties from
hepatitis B vaccines ("HBV"); and (iii) $6.1 million of first-time royalties
related to sales of PCR products (see below). For the first nine months of 1998
and 1997, Chiron recognized royalty and license fee revenues of $81.3 million
and $37.1 million, respectively. In addition to the third-quarter items
discussed above, the increase in royalty and license fee revenues for the nine
months ended September 30, 1998 as compared with the corresponding period in
1997 is related to (i) an increase of $3.2 million in royalty revenues
resulting from Schering AG's European sales of Betaferon-Registered Trademark-;
and (ii) a one-time $5.0 million license fee received from Pharmacia & Upjohn
Company (see discussion below). Partially offsetting the increases discussed
above for the nine months ended September 30, 1998, is an aggregate decrease of
$1.8 million from royalties on sales by Merck & Co., Inc. for HBV vaccines and
by Novo Nordisk for insulin and glucagon. A significant contractual decrease in
royalties related to insulin will occur in January 1999.
In August 1998, Chiron recognized $24.0 million of royalty and license fee
revenues from a one-time license fee under a non-exclusive license agreement
related to certain technologies used in human vaccine products. This agreement
also provides Chiron with ongoing royalties on product sales using these
technologies. For the quarter ended September 30, 1998, Chiron recognized $1.4
million of royalty and license fee revenues related to these ongoing royalties.
In addition, in the third quarter of 1998, Chiron received a first-time payment
of $6.1 million related to ongoing royalties related to sales of PCR products.
In January 1998, Chiron recognized $5.0 million of royalty and license fee
revenues from a one-time license fee under an exclusive collaboration with
Pharmacia & Upjohn Company to research, develop, manufacture and commercialize
therapeutic and prophylactic products for the treatment of hepatitis C ("HCV")
in humans. Subject to certain limitations and cancellation clauses, Chiron and
Pharmacia & Upjohn will share equally in the funding of research activities
performed under the collaboration agreement. The term of the collaboration is
three years, subject to extension by mutual consent.
OTHER REVENUES Other revenues consist principally of promotion and
co-promotion of Novartis' product Aredia-Registered Trademark- (pamidronate
disodium for injection), and beginning in the second quarter of 1998, sales
fees generated by Chiron Behring. Chiron recognized other revenues of $7.9
million and $6.1 million, for the third quarters of 1998 and 1997,
respectively, and $28.1 million and $28.2 million for the first nine months of
1998 and 1997, respectively. On an overall basis, decreases in other revenues
related to Aredia-Registered Trademark- (see below) were offset by the sales
fees generated by Chiron Behring.
A November 1996 agreement with Novartis, executed primarily in connection
with a consent and agreement that resolved the Federal Trade Commission's
review of the Ciba-Geigy Ltd. and
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Sandoz Ltd. merger that created Novartis, provided that Chiron, through a
co-promotion arrangement with Novartis, would promote Aredia-Registered
Trademark- for two years after a six-month transitional period beginning April
1997. In December 1997, the co-promotion arrangement with Novartis was
modified such that Chiron would no longer promote Aredia-Registered Trademark-
after April 3, 1998. Included in other revenues for the nine months ended
September 30, 1998, were $9.8 million of revenues earned through April 3,
1998 related to Aredia-Registered Trademark- co-promotion services as compared
with $24.1 million in the first nine months of 1997. Prior to April 1997,
Chiron recognized other revenues from sales fees earned under an agreement
with Novartis which provided Chiron with sole promotional rights in the U.S.
to Aredia-Registered Trademark-. Under this exclusive agreement which expired
in March 1997, Chiron recognized Aredia-Registered Trademark- sales fees of
$12.5 million in the first quarter of 1997.
COSTS AND EXPENSES
GROSS PROFIT Gross profit as a percentage of net product sales for the
quarters ended September 30, 1998 and 1997 was 56 percent and 52 percent,
respectively. For the first nine months of 1998 and 1997, gross profit as a
percentage of net product sales was 57 percent and 53 percent, respectively. In
the third quarter of 1998, a $3.3 million reduction in cost of sales was
recognized due to a change in estimated accruals created in prior periods.
Excluding this reduction in cost of sales, gross profit margin would have been
53 percent for the quarter ended September 30, 1998. Also impacting the
Company's gross profit margin for the nine months ended September 30, 1998 was a
$6.0 million reduction in cost of sales due to a change in estimated property
tax accruals created in prior periods. Gross profit margin excluding these items
would have been 53 percent for the nine months ended September 30, 1998.
Impacting the Company's gross profit margins in 1998 as compared with 1997
are (i) an unfavorable mix of vaccine product sales which, beginning with the
consolidation of Chiron Behring in the second quarter of 1998, includes a
significant portion of in-licensed products with lower gross margins; (ii)
improvements in gross profit margins on domestic sales of Proleukin-Registered
Trademark- due to price increases; and (iii) a 1997 third-quarter charge to cost
of sales for inventory related reserves. In addition, included in cost of sales
in 1997 were operating expenses to maintain the idle Puerto Rico facility which
was sold in the second quarter of 1998. Gross profit margin percentages may
fluctuate significantly in future periods as the Company's product mix continues
to evolve.
RESEARCH AND DEVELOPMENT Chiron recognized research and development
expenses of $69.4 million and $68.0 million in the third quarters of 1998 and
1997, respectively. For the first nine months of 1998 and 1997, Chiron
recognized research and development expenses of $202.4 million and $193.9
million, respectively. Generally, the Company's research and development
expenses fluctuate from period to period depending upon the extent of clinical
trial-related activities, including the manufacturing of clinical material; the
number of products under development and their progress; and the acquisition of
companies and new technology and licensing rights.
In the third quarter of 1998, research and development expenses remained
fairly constant despite the consolidation of Chiron Behring in the second
quarter of 1998, which increased third-quarter research and development expenses
by $4.3 million in 1998. For the nine months ended September 30, 1998, Chiron
Behring contributed $8.6 million to the Company's research and development
expenses. In 1998, the Company reduced research and development spending
specifically related to Myotrophin-Registered Trademark- (mecasermin) Injection
(see discussion below), PDGF and
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certain vaccines, including HBV and pertussis vaccines. Partially offsetting
the reduction in research and development expenses in 1998 were increased
spending related to genomics, biologics, and cancer targets and mechanisms
research.
Myotrophin-Registered Trademark- Injection is being developed by the
Company in collaboration with Cephalon, Inc. ("Cephalon") as a treatment for
amyotrophic lateral sclerosis ("ALS" or Lou Gehrig's disease). On May 8, 1997,
an FDA advisory committee found that there was not sufficient evidence of
efficacy in the use of Myotrophin-Registered Trademark- Injection for the
treatment of ALS to warrant FDA approval. In November 1997, Chiron and Cephalon
withdrew and resubmitted their application to the FDA; this was done at the
request of the FDA to allow more time for review of the new drug application.
In May 1998, the FDA issued a letter stating that Myotrophin-Registered
Trademark- is "potentially approvable," subject to the submission of additional
information demonstrating that Myotrophin-Registered Trademark- is effective in
the treatment of ALS. There can be no assurance as to whether this information
will satisfy the FDA with respect to Myotrophin-Registered Trademark-. Although
Chiron and Cephalon are continuing their discussions with the FDA and have
provided the FDA with the requested information, the Company is unable to
predict when or how the FDA will act. In August 1998, Cephalon and Chiron
withdrew this joint application of approval to market Myotrophin-Registered
Trademark- in Europe.
OTHER OPERATING EXPENSES Selling, general and administrative ("SG&A")
expenses as a percentage of net product sales in the third quarters of 1998 and
1997 were 36 percent and 40 percent, respectively. For the first nine months of
1998 and 1997, SG&A expenses as a percentage of net product sales were 37
percent and 42 percent, respectively. Included in SG&A expenses for the nine
months ended September 30, 1998 and 1997 were $2.0 million and $3.2 million,
respectively, of reductions in SG&A expenses related to changes in estimated
accruals created in prior periods. Selling and marketing expenses continued 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. The overall increase in SG&A expenses in the third quarter
and first nine months of 1998 as compared with the corresponding periods in 1997
was due primarily to the consolidation of Chiron Behring in the second quarter
of 1998, which contributed $10.0 million and $23.4 million to SG&A expenses in
the third quarter and first nine months of 1998, respectively. Other increases
in SG&A in the third quarter of 1998 as compared with the third quarter of 1997
consisted of additional sales and marketing expenses to support the growth in
sales and legal fees in defense of certain patents.
For the first nine months of 1998, Chiron recognized net restructuring and
reorganization charges of $11.3 million, which included a third-quarter charge
of $6.4 million, a second-quarter benefit of $2.6 million, and a first-quarter
charge of $7.5 million. The third-quarter charge of $6.4 million consisted of
$3.8 million of termination and other employee-related costs in connection with
the planned elimination of 46 positions in sales, marketing and other
administrative, manufacturing, and research and development functions. The
elimination of these positions is due primarily to the planned integration of
the Company's worldwide vaccines operations as well as the Company's ongoing
rationalization of business operations. In connection with the plan of
termination, 9 employees were terminated during the quarter ended September 30,
1998 and benefits of $0.2 million were paid and charged against the accrual. The
remaining $2.6 million of third-quarter restructuring and reorganization charges
resulted from facility-related costs of which $0.8 million was charged against
the accrual during the quarter. At September 30, 1998, the liability associated
with third-quarter restructuring and reorganization charges was $5.4 million.
The second-quarter benefit of $2.6 million consisted of a $3.6 million
benefit due to a revised estimate of property and other tax-related accruals
recorded in 1995 in connection with the idling
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of the Puerto Rico facility, and charges of $1.0 million consisting of
facility-related costs. At September 30, 1998, the liability associated with
second-quarter charges was $0.3 million.
The first-quarter charge of $7.5 million consisted of $5.8 million of
termination and other employee-related costs in connection with the planned
elimination of 129 positions in sales, marketing and other administrative,
manufacturing, and research and development functions. The elimination of these
positions is due primarily to the Company's ongoing rationalization of business
operations related to the closure of the Company's Puerto Rico and St. Louis
facilities. In connection with the plan of termination, all 129 employees were
terminated during the first nine months of 1998 and benefits of $3.4 million
were paid and charged against the accrual. The remaining $1.7 million consisted
of facility-related costs of which $1.5 million was charged against the accrual
during the first nine months of 1998. At September 30, 1998, the liability
associated with the first-quarter charge was $2.6 million.
The liabilities related to restructuring and reorganization charges are
expected to be substantially settled within twelve months of accruing the
related charges. The Company anticipates that it will incur future restructuring
and reorganization expenses in the fourth quarter of 1998 as it continues to
create a simpler, more efficient cost structure for the organization.
NON-OPERATING INCOME AND EXPENSE
In August 1998, Chiron completed the sale of its manufacturing facility in
St. Louis, Missouri resulting in a gain on sale of assets of $1.5 million. In
addition, in June 1998, the Company sold its fill and finishing facility in
Puerto Rico resulting in a gain of $6.2 million.
Interest expense in the third quarter and first nine months of 1998
decreased $2.1 million and $5.1 million, respectively, from the corresponding
periods of 1997, due primarily to the repayment of $100.0 million on the
Company's lines of credit in January 1998. The borrowings were outstanding under
the Company's U.S. credit facilities and were repaid with a portion of the
proceeds received from the sale of Chiron Vision.
Other income, net, consists primarily of investment income on the Company's
cash and investment balances and other non-operating gains and losses. Interest
income in the third quarter and first nine months of 1998 increased by $2.9
million and $11.6 million, respectively, as compared with the same periods in
1997, due primarily to increased average cash and investment balances
attributable to the net cash proceeds received from the sale of Chiron Vision.
In addition, for the nine months ended September 30, 1998 and 1997, Chiron
recognized gains of $4.6 million and $2.2 million, respectively, related to the
sale of equity securities. Partially offsetting the increases in other income,
net, for the three and nine months ended September 30, 1998, were losses of $0.9
million and $3.9 million, respectively, attributable to the other-than-temporary
impairment of certain equity securities. No losses related to equity securities
were recognized in 1997.
The 1998 estimated annual tax provision is expected to be 26 percent of
pretax income from continuing operations, excluding restructuring and
reorganization charges, a financial reporting gain on sale of the Puerto Rico
facility (refer to Note 4 of NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS), and $6.0 million of financial reporting income recognized in the
second quarter of 1998 due to a change in estimated property tax accruals. The
provision may be affected in future periods by changes in management's estimates
with respect to the Company's deferred tax assets and other items affecting the
overall tax rate. In 1998, restructuring and reorganization
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charges recorded during the three and nine months ended September 30, 1998
are expected to create current additional income tax benefits of
approximately $0.8 million and $2.9 million, respectively. The benefits from
restructuring and reorganization charges are lower than the estimated annual
tax rate applied to such charges due to the timing of the deduction of a
certain portion of the charges for income tax purposes. The sale of the
Company's Puerto Rico facility, for which a financial reporting gain on sale
of assets was recorded during the nine months ended September 30, 1998,
resulted in a tax deductible loss for which a current additional income tax
benefit of $1.5 million was recognized. These income tax benefits offset
income tax expense attributable to pretax income from continuing operations
and, accordingly, reduce the effective tax rate on continuing operations.
Financial reporting income of $6.0 million was recognized during the nine
months ended September 30, 1998 from a change in estimated property tax
accruals; such accruals were not tax deductible and, accordingly, the change
of estimate resulted in no income tax provision. During the three and nine
months ended September 30, 1998, net deferred tax assets of $7.2 million and
$10.7 million, respectively, and corresponding credits to deferred tax
expense, were recognized through a reduction in the valuation allowance, as
they more likely than not will be realized, for U.S. federal and state tax
purposes. In addition, in the third quarter of 1998, the Company reduced its
valuation allowance for net deferred tax assets by an additional $53.4
million as the deferred tax assets will more likely than not be realized due
to the planned sale of the Company's in vitro diagnostics business. As these
deferred tax assets resulted from tax benefits related to the Company's stock
option plans, the corresponding credit was recorded as additional paid-in
capital. The recognition of such net deferred tax assets is based on
management's estimates of future taxable income in the United States,
including the anticipated taxable gain on the planned disposal of the
Company's in vitro diagnostics business. Such estimates are subject to change
based on future events and, accordingly, the amount of deferred tax assets
recognized may increase or decrease from period to period.
Income tax expense for the three and nine months ended September 30,
1997 was based on an estimated annual effective tax rate on pretax income
from continuing operations of approximately 29 percent, excluding the charge
for the impairment loss on long-lived assets which did not create a
corresponding income tax benefit at that time. The actual 1997 annual
effective tax rate of 24 percent, exclusive of the impact of the impairment
loss in the third quarter, reflects a change in estimate of the mix of
foreign versus domestic profits, benefits of certain tax credits and loss
carryforwards, and anticipated foreign sales corporation benefits.
DISCONTINUED OPERATIONS
On September 17, 1998 Chiron and Bayer entered into a definitive agreement
pursuant to which Chiron has agreed to sell its in vitro diagnostics business to
Bayer for approximately $1,013.8 million in cash, subject to certain
post-closing adjustments. The consummation of the transaction is subject to
standard closing conditions, including receipt of required regulatory approvals,
and is expected to occur in the fourth quarter of 1998. The agreement further
provides for customary post-closing indemnities. Refer to Note 2 of NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Under the terms of the agreement, Chiron will retain (i) its blood
testing business, including certain aspects of its alliance with Gen-Probe,
Incorporated, (ii) its joint business with Ortho-Clinical Diagnostics, Inc.,
and (iii) its information technology ("informatics") business. Chiron also
will retain its hepatitis and retrovirus patents and know-how.
Upon the closing of the sale of Chiron Diagnostics, Chiron and Bayer intend
to enter into certain
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agreements related to the licensing of certain patent rights and know-how
owned or controlled by Chiron. In addition, on September 25, 1998 Chiron and
Bayer signed a technology license and option agreement for Bayer's use and
distribution of software and related systems and services developed by
Chiron's informatics business.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is effective for all
quarters of fiscal years beginning after June 15, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In accordance with SFAS 133, an entity is required to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. The Company has not determined the timing or method of adoption and
is currently evaluating the effect that implementation of SFAS 133 will have on
its results of operations and financial position.
LIQUIDITY AND CAPITAL RESOURCES
Chiron's capital requirements have been generally funded from operations,
cash and investments on hand, debt borrowings and sales of equity. In addition
to these sources of capital, future capital requirements may be financed through
a combination of research and development funding provided by Novartis, possible
off-balance-sheet financing and the sale of the Company's in vitro diagnostics
business. Chiron's cash and investments in marketable debt securities, which
totaled $420.0 million at September 30, 1998, 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.
SOURCES AND USES OF CASH Chiron had cash and cash equivalents of $192.4
million and $143.9 million at September 30, 1998 and 1997, respectively. Cash
provided by operating activities was $85.8 million in the first nine months of
1998 as compared with $83.7 million in the first nine months of 1997. The
primary source of cash from operating activities during the first nine months of
1998 was income from continuing operations of $61.6 million offset, in part, by
an increase in accounts receivable. During the first nine months of 1997, the
primary sources of cash from operating activities was a decrease in accounts
receivable due to significant collections by Chiron's Italian subsidiary and the
timing of payments from Novartis and the Chiron-Ortho joint business.
Cash used in investing activities was $8.3 million in the first nine months
of 1998 as compared with $85.4 million in the first nine months of 1997. In the
first nine months of 1998, the primary sources of cash from investing activities
were proceeds of $298.9 million from the sale of Chiron Vision, $192.4 million
from the sale and maturity of investments in marketable debt securities and
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$38.3 million from the sale of the Company's Puerto Rico and St. Louis
facilities. These sources of cash in the first nine months of 1998 were
offset by the purchase of $371.3 million of investments in marketable debt
securities, $54.8 million (net of cash acquired) for the purchase of Chiron
Behring and acquisitions of property and equipment totaling $82.5 million. In
the first nine months of 1997, the primary source of cash from investing
activities was $44.8 million of proceeds from the sale and maturity of
investments in marketable debt securities. This source of cash in the first
nine months of 1997 was offset by acquisitions of property and equipment
totaling $49.9 million and the purchase of $58.5 million of investments in
marketable debt securities.
Cash (used in) provided by financing activities was ($95.5) million in the
first nine months of 1998 as compared with $37.2 million in the first nine
months of 1997. In the first nine months of 1998, the primary use of cash was
the repayment of $129.8 million of short-term debt, $100.0 million of which was
outstanding under the Company's U.S. credit facilities and was repaid utilizing
a portion of the proceeds from the sale of Chiron Vision. In the first nine
months of 1997, the primary use of cash was Chiron's purchase of a previously
leased manufacturing facility and related buildings in Emeryville, California
for $29.8 million. Also contributing to cash provided by financing activities
were proceeds of $36.0 million and $52.5 million in the first nine months of
1998 and 1997, respectively, from issuance of common stock under the Company's
stock option and employee stock purchase plans.
In January 1998, the Company's Board of Directors authorized the purchase
of up to 2.5 million shares of Chiron common stock from time to time on the open
market in order to offset the dilution associated with the operation of the
Company's stock option and employee stock purchase plans and the granting of
share rights. The Board of Directors has authorized such purchases through
January 1999. To date, no shares have been purchased.
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.
BORROWING ARRANGEMENTS Under two separate revolving, committed, unsecured
credit agreements with major financial institutions, Chiron can borrow up to
$200.0 million in the U.S. These agreements, which are guaranteed by Novartis,
allow for borrowings of up to $100.0 million each and mature in March 1999 and
February 2003. No borrowings were outstanding under these credit agreements at
September 30, 1998. Under Chiron's credit arrangements outside the U.S.,
borrowings of $25.6 million were outstanding at September 30, 1998.
OTHER COMMITMENTS In the third quarter of 1998, Chiron and Gen-Probe,
Incorporated ("Gen-Probe") a wholly owned subsidiary of Chugai Pharmaceutical
Co., Ltd., signed an agreement to form a strategic alliance to develop,
manufacture and market nucleic acid probe assay systems for blood testing and
certain areas of diagnostics. Under the terms of the agreement, Chiron will
market and sell products that utilize the Company's intellectual property
relating to HCV and HIV and Gen-Probe's patented transcription-mediated
amplification, target capture, hybridization protection assay and dual
kinetic assay technologies. In addition, the technology rights acquired from
Gen-Probe are anticipated to be utilized across a broad base of marker
technology within the Company's blood testing and diagnostics businesses. In
exchange for the rights to Gen-Probe's technology, Chiron paid $10.0 million
upon signing the agreement, which was recorded as a component of "Other
intangible assets, net" in the Company's consolidated balance sheet at
September 30, 1998. Chiron's future milestone payment obligations to
Gen-Probe consist of a $15.0 million payment due within 30 days after
Gen-Probe's submission of an investigational new drug application to the FDA
for its automated HCV/HIV assay for blood testing and another
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$10.0 million upon Gen-Probe's receipt of marketing approval from the FDA for
such products. As part of the sale of Chiron Diagnostics, Chiron will transfer
to Bayer certain technologies obtained in the Gen-Probe agreement as it relates
to in vitro diagnostics and will retain the technologies related to blood
testing. As a result, upon the completion of the sale of Chiron Diagnostics,
Bayer will assume $6.5 million of the $15.0 million obligation discussed above.
The agreement with Gen-Probe also provides certain provisions for additional
cost sharing and royalties upon the commercialization of specified products.
Effective July 1, 1998, Chiron and International Business Machines
Corporation ("IBM") executed a ten-year information technology services
agreement. Under this agreement, IBM will provide Chiron with a full range of
information services, including designing and deploying a company-wide
distributed network system, establishing a comprehensive help-desk operation,
and developing a standardized desk-top platform using IBM workstations. Chiron
may terminate this agreement beginning July 1, 1999 subject to certain
termination charges. Through July 1, 1999, Chiron's payments to IBM will total
$19.3 million. If Chiron does not terminate this agreement prior to expiration,
payments to IBM are expected to be approximately $138.8 million in aggregate.
Payments to IBM are subject to adjustment depending upon the levels of services
and infrastructure equipment provided by IBM.
In June 1996, the Company entered into a seven-year operating lease
agreement with a group of financial institutions to rent a research and
development facility that was constructed in Emeryville, California. Rent
payments, based upon the total construction costs, will commence upon the final
completion of the project which is expected to occur in the first quarter of
1999. Estimated future minimum lease payments are expected to be approximately
$10.5 million annually.
Chiron's liquidity may be further affected 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 investments in collaborative partners. The Company also expects to
incur substantial capital spending in future periods.
MARKET RISK MANAGEMENT The Company's cash flow and earnings are subject to
fluctuations due to changes in foreign currency exchange rates, interest rates,
and fair value of equity securities held. The Company attempts to limit its
exposure to some or all of these market risks through the use of various
financial instruments, as more fully described in Part II, Item 7A.,
"Quantitative and Qualitative Disclosures About Market Risk," of Chiron's Annual
Report on Form 10-K for the fiscal year ended December 28, 1997. To manage
foreign currency exchange risks, Chiron enters into forward foreign currency
contracts ("forwards") and cross currency interest rate swaps ("swaps"), and
purchases foreign currency option contracts ("options"). Chiron does not use any
of these derivative instruments for trading or speculative purposes.
On April 1, 1998, the Company entered into a series of swaps to modify the
interest and currency characteristics of certain assets and liabilities
denominated in a nonfunctional currency. The objective of the swaps entered into
by the Company is to fix the interest rate and currency rate exposures
associated with the Company's wholly-owned German subsidiary. The exposures are
denominated in Deutsche marks and have a notional amount of $114.2 million at
September 30, 1998.
31
<PAGE>
The Company has exposure to changes in interest rates in both its
investment portfolio and certain floating rate liabilities and real estate
commitments. The Company maintains investment portfolio holdings of various
issuers, types and maturities. These securities are generally classified as
available-for-sale and consequently, are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a separate component of
stockholders' equity. Other-than-temporary losses are recorded against earnings
in the same period the loss was deemed to have occurred. The Company does not
currently hedge this exposure and there can be no assurance that
other-than-temporary losses will not have a material adverse impact on the
Company's results of operations in the future. The Company also has short-term
debt obligations and certain real estate lease commitments with interest rates
or payments tied to London Interbank Offered Rate (LIBOR).
YEAR 2000 Chiron is dependent on a number of computer systems and
applications to conduct its business. In the past, many computer programs were
written using two digits rather than four to identify the relevant year. These
programs may not be able to distinguish between 21st and 20th century dates (for
example, "00" may be read as the year 1900 when the year 2000 is intended). This
could result in significant system failures or miscalculations. Accordingly, the
Company has developed a comprehensive risk-based plan designed to make its
computer hardware and communication systems, software applications, and
facilities and other non-information technology-related functions Year 2000
compliant. The plan covers three phases including (i) planning, (ii) assessment,
and (iii) implementation. The Company has substantially completed the planning
and assessment phases, and expects to complete the implementation phase by
mid-1999. With regard to the Company's computer hardware and communication
systems, Chiron is in the process of implementing a technology refresh program
which was developed in conjunction with IBM Corporation to update and
standardize the Company's computer hardware and communication systems. As a
result of this program, the Company expects its computer hardware and
communication systems to be Year 2000 compliant by mid-1999. With regard to the
Company's software applications, the Company has identified critical and
non-critical software applications and is in the process of updating and/or
developing software applications or certifying, in a test environment, that the
software applications are Year 2000 compliant. A major component of remediating
non-compliant software applications is the design and implementation of an
integrated information system. The Company anticipates that implementation of
this integrated information system will be completed by mid-1999. With regard to
the Company's facilities and other non-information technology-related functions,
including research, manufacturing, and inventory management practices, the
Company has performed an assessment and has begun remediation which is intended
to make its facilities and other non-information technology-related functions
Year 2000 compliant by mid-1999.
The Company is currently utilizing both internal and external resources to
prepare for the year 2000. The Company believes that it should be able to
substantially complete the implementation of critical internal aspects of its
Year 2000 plan prior to the commencement of the year 2000. However, even with
substantial completion of internal remediation plans, the Company's customers,
suppliers and distributors also present risk of their own Year 2000 compliance
over which the Company has no control. The Company has initiated communications
with its critical suppliers and other external relationships to determine the
extent to which the Company may be vulnerable to such parties' failure to
resolve their own Year 2000 issues. Where practicable, the Company will assess
and attempt to mitigate its risks with respect to the failure of these entities
to be Year 2000 compliant. The effect, if any, on the Company's results of
operations from the failure of such parties to be Year 2000 compliant, cannot be
reasonably estimated.
32
<PAGE>
The Company is also developing contingency plans to address any Year 2000
issues that do arise. As part of the Company's contingency plans, the Company is
developing specific plans for each critical system to ensure that the necessary
precautions are taken to prevent and/or address an unexpected system failure.
Many of these contingency plans are already in place as they are based on
existing plans that are required for the safe and proper operation of the
Company's business, including its research and manufacturing facilities.
The SEC has requested that companies disclose the most likely worst case
scenario that could occur as a result of the Year 2000. The Company believes
that its most likely worst case scenario would be delays in product shipments
due to a complete or partial manufacturing shutdown and/or the delayed
implementation of the Company's integrated information system. To address the
manufacturing shutdown scenario, the Company plans, among other things, to
increase its inventory and re-prioritize staff assignments, as needed, and does
not believe that such a scenario is likely to occur. With regard to the delayed
implementation of the Company's integrated information system, the Company has
established a contingency plan to remediate its non-compliant business systems
if scheduled milestones are not met. However, based on the Company's progress to
date, and in consideration of the amount of resources allocated to this project,
the Company believes that implementation of its integrated information system
will occur as scheduled.
The Company may incur significant costs in identifying and resolving Year
2000 issues, including internal staffing costs as well as consulting and other
expenses. In addition, in certain instances, the appropriate course of action
includes replacing or upgrading systems or equipment at a substantial cost to
the Company. Failure of the Company to successfully complete its implementation
of an integrated information system, which is a key element in the Company's
Year 2000 remediation program, may have a material adverse impact on the
Company's operations. The Company currently estimates that the costs associated
with preparing for the year 2000 will range from $9.0 million to $11.0 million.
The costs associated with the technology refresh program and the integrated
information system are not included in the above estimates as Year 2000
compliance is incidental to the operational benefits expected to be derived from
these programs. Costs incurred through September 30, 1998 have been funded
through operations and approximate $0.5 million. The Company anticipates that
most of its Year 2000 costs will be incurred during the fourth quarter of 1998
and the first quarter of 1999. These costs are anticipated to be funded with
cash on hand and cash generated through operations.
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 fourth quarter of 1998, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Chiron. The statements under this caption are intended to serve as
cautionary statements within the meaning of the Private Securities Litigation
Reform Act of 1995. The following information is not intended to limit in any
way the characterization of other statements or information under other captions
as cautionary statements for such purpose:
- The Company has entered into an agreement to sell its in vitro
diagnostics business to Bayer Corporation in a transaction that is
expected to be completed by the end of 1998. The transaction is
subject to customary closing conditions and no assurance can be made
as to when or whether the transaction will close.
33
<PAGE>
- Delays, difficulties or failure in obtaining and maintaining
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-Registered Trademark- for which additional clinical
trials may be required by the FDA, and approval for DepoCyt-TM-
(injectable sustained-release cytarabine).
- The impact of unusual or infrequent charges resulting from Chiron's
implementation of new business strategies and organizational
structures.
- The cost of acquiring in-process technology, either by license,
collaboration or purchase of another entity, and including the costs
of integrating acquired businesses.
- Charges that may be incurred or accrued as a result of the
implementation of restructuring plans, including possible disposal of
excess manufacturing and other general facilities, or as a result of
the underutilization of manufacturing and other general facilities,
including facility expansions.
- The ability of the Company to successfully complete its implementation
of an integrated information system.
- Costs of remediation related to issues that may be identified or
incurred as a result of the Company's ongoing evaluation of its Year
2000 compliance, and the potential exposure to failures by third
parties to properly remediate their own Year 2000 issues.
- The Company's exposure to interest rate fluctuations increases as the
Company's cash and investment balances increase.
- 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 successfully commercialize 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. The impact of
competing products, and inventory management practices, pricing,
promotional and marketing decisions by the Company's
34
<PAGE>
partners, Schering AG for Betaseron-Registered Trademark-, Johnson &
Johnson for PDGF and Ortho-Clinical Diagnostics, Inc. for the
Chiron-Ortho joint business.
- Delay, difficulty or inability on acceptable terms to resolve
conflicts with partners.
- 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, manufacture and sale of
the Company's products.
- The ability and willingness of customers to substitute competitive
products for the Company's products if 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.
- 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.
- Revaluation of assets, including, among others, the Company's
investments in the equity securities of other companies with whom it
collaborates, or related expenses.
- Changes to tax rates or possible future changes to conditions of
certain tax rulings obtained by the Company or its subsidiaries, or
outcomes of present or future examinations by tax authorities.
- 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.
35
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A discussion of the Company's exposure to, and management of, market risk
appears in Part 1, Item 2 of this Quarterly Report on Form 10-Q under the
heading "Market risk management."
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company is party to certain lawsuits and legal proceedings, which are
described in Part I, Item 3, "Legal Proceedings," of the Company's Annual Report
on Form 10-K for the year ended December 28, 1997. No material developments in
the area of legal proceedings have occurred since such Form 10-K was filed
except as described in the Company's Forms 10-Q for the periods ended March 29,
1998 and June 28, 1998 and except as follows:
F. HOFFMANN LAROCHE
Chiron is involved in certain litigation in the United States, The Netherlands,
Japan, and Germany with F. Hoffmann-LaRoche AG and several of its affiliated
companies concerning infringement and/or validity of certain Chiron patents
related to HCV technology. It is not known when nor on what bases any of these
litigation matters will be concluded.
On February 3, 1998, Chiron filed an action in The District Court of The Hague,
The Netherlands against F. Hoffmann-LaRoche AG, several of its affiliated
companies (collectively, "Roche AG"), and one of Roche AG's Dutch customers
asserting Roche AG's infringement of the Company's European Patent 0 318 216
(the "'216 patent") relating to HCV nucleic acid technology. Chiron seeks a
cross-border injunction with effect in a number of European countries,
prohibiting the sale of Roche AG's Amplicor HCV-TM- Test and Amplicor HCV
Monitor-TM- Test. Roche AG has asserted certain defenses and counterclaims in
this matter. Trial occurred in October 1998 with respect to certain of these
issues. Subject to the results of that trial, further, as yet unscheduled,
proceedings may be necessary before this action is resolved. In a separate
proceeding, Roche AG and Chiron are appealing the European Patent Office's
Opposition Division's decision upholding the `216 patent in amended form.
On January 9, 1997, Chiron, together with Ortho-Clinical Diagnostics, Inc.,
filed suit against F. Hoffmann-LaRoche AG ("Roche") in the Regional Court,
4th Civil Division, Dusseldorf, Germany, for infringement of the `216 patent.
The suit seeks damages and injunctive relief preventing further manufacture
or sale of infringing HCV immunoassay kits by Roche. Roche has asserted
certain claims and defenses in this matter. Trial is set for January 7, 1999.
CONNAUGHT LABORATORIES, LIMITED
On July 17, 1997, Connaught filed suit in the Landgericht Dusseldorf,
Germany, against Chiron Behring GmbH & Co, Chiron S.p.A., and Behringwerke AG
asserting imminent infringement of Connaught's European Patent 0 322 115 (the
"'115 patent") relating to pertussis toxin mutants. Connaught seeks to
prevent introduction of TriAcelluvax-TM- in Germany. Also, Connaught seeks
damages and an order from the German court enjoining Chiron S.p.A. from
manufacturing and selling TriAcelluvax-TM- in both Germany and Italy. Trial
was held in August 1998 and a decision in this matter is expected in December
1998. It is not known when nor under what basis litigation will be concluded.
36
<PAGE>
ORTHO-CLINICAL DIAGNOSTICS, INC.
On February 17, 1998, Chiron filed a lawsuit against Ortho-Clinical Diagnostics,
Inc. in the United States District Court for the Northern District of
California. The suit concerns certain issues relating to the conduct of the
parties' joint business and seeks to compel arbitration of those issues. A
hearing on Chiron's motion to compel arbitration is scheduled in December 1998.
It is not known when nor on what basis this matter will be concluded.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<C> <S>
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.
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
Registrant's Form 10-K report for fiscal year 1997.
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
37
<PAGE>
<C> <S>
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).
4.6 $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).
10.402 Stock Purchase Agreement dated as of September 17, 1998,
among Bayer Corporation, the Registrant and Chiron
Diagnostics Corporation, and Exhibits thereto. 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".
10.510 Form of Stock Option Agreement, Chiron 1991 Stock Option
Plan, for Employees of Registrant.
10.511 Form of Stock Option Agreement, Chiron 1991 Stock Option
Plan, for Non-Employee Directors of Registrant.
10.613 Letter Agreement dated July 8, 1998 between the Registrant
and Richard W. Barker, Ph.D. 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".
11 Statement of Computation of Earnings per Share.
27 Financial Data Schedule for Nine Months ended September 27,
1998.
</TABLE>
(b) REPORTS ON FORM 8-K.
On September 21, 1998, the Company filed a Current Report on Form 8-K,
reporting under Item 5 the execution on September 17, 1998 of an agreement
among the Company, Chiron Diagnostics Corporation, and Bayer Corporation,
pursuant to which the Company has agreed to sell to Bayer all of the
outstanding common stock of Chiron Diagnostics for approximately $1,013.8
million in cash, subject to certain adjustments.
38
<PAGE>
CHIRON CORPORATION
September 27, 1998
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: November 9, 1998 BY: /s/ SEAN P. LANCE
-------------------- -------------------------------------
Sean P. Lance
President and Chief Executive Officer
DATE: November 9, 1998 BY: /s/ JAMES R. SULAT
-------------------- -------------------------------------
James R. Sulat
Chief Financial Officer
39
<PAGE>
***CONFIDENTIAL TREATMENT REQUESTED***
STOCK PURCHASE AGREEMENT
by and among
BAYER CORPORATION,
CHIRON CORPORATION
and
CHIRON DIAGNOSTICS CORPORATION
Dated as of September 17, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Purchase and Sale
<TABLE>
<S> <C> <C>
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price; Payment at Closing. . . . . . . . . . . . . . . . . . 2
1.3 Payment of Cash Consideration; Cash Consideration Adjustments . . . . 2
1.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Excluded Businesses . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Included Businesses . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Certain Intellectual Property and Other Assets. . . . . . . . . . . . 5
1.8 Certain Other Excluded Assets/Liabilities . . . . . . . . . . . . . . 5
ARTICLE II
Representations and Warranties of Chiron and the Company
2.1 Organization and Authority of Chiron. . . . . . . . . . . . . . . . . 6
2.2 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 No Governmental Consent or Approval Required. . . . . . . . . . . . . 7
2.4 Subsidiaries; Capitalization, Qualification and Liabilities; Joint
Ventures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Organization and Authority of the Company and Subsidiaries. . . . . . 8
2.6 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 9
2.8 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . .10
2.9 Absence of Certain Developments . . . . . . . . . . . . . . . . . . .11
2.10 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . .11
2.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.12 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
2.13 Patents and Patent Applications . . . . . . . . . . . . . . . . . . .15
2.14 Trademarks and Other Intellectual Property. . . . . . . . . . . . . .18
2.15 Compliance with Law; Governmental Permits; Product Registrations. . .19
2.16 [RESERVED]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2.17 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . .20
2.18 Certain Interests . . . . . . . . . . . . . . . . . . . . . . . . . .22
2.19 Intercompany Transactions . . . . . . . . . . . . . . . . . . . . . .22
2.20 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . .22
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . .23
2.22 Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
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2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
2.24 Private Offering. . . . . . . . . . . . . . . . . . . . . . . . . . .24
ARTICLE III
Representations and Warranties of the Purchaser
3.1 Organization and Authority. . . . . . . . . . . . . . . . . . . . . .25
3.2 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . . .25
3.3 No Governmental Consent or Approval Required. . . . . . . . . . . . .26
3.4 Financial Capability. . . . . . . . . . . . . . . . . . . . . . . . .26
3.5 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . .26
ARTICLE IV
Covenants
4.1 Cooperation and Access. . . . . . . . . . . . . . . . . . . . . . . .26
4.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . .27
4.3 Commercially Reasonable Efforts; Government Approvals . . . . . . . .30
4.4 Services; Inter-company Agreements; Assumption of Certain
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
4.5 Use of Chiron Name. . . . . . . . . . . . . . . . . . . . . . . . . .32
4.6 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . .33
4.7 Employees; Employee Benefits. . . . . . . . . . . . . . . . . . . . .33
4.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
4.9 Warn Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
4.10 Resignations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
4.11 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . .38
4.12 Other Transactions. . . . . . . . . . . . . . . . . . . . . . . . . .39
4.13 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
4.14 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
4.15 Subsidiary Stock. . . . . . . . . . . . . . . . . . . . . . . . . . .40
4.16 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . .40
ARTICLE V
Tax Matters
5.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
5.2 Tax-Related Representations and Warranties. . . . . . . . . . . . . .41
5.3 Section 338(h)(10). . . . . . . . . . . . . . . . . . . . . . . . . .42
5.4 Liability for Taxes and Related Matters . . . . . . . . . . . . . . .43
5.5 Net Operating Losses and Credits. . . . . . . . . . . . . . . . . . .45
5.6 Adjustment to Purchase Price. . . . . . . . . . . . . . . . . . . . .46
5.7 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
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<PAGE>
5.8 Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .47
5.9 Information to be Provided by the Purchaser . . . . . . . . . . . . .47
5.10 Tax Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .48
5.11 Changes in Elections, Amended Returns, Etc. . . . . . . . . . . . . .49
5.12 Assistance and Cooperation. . . . . . . . . . . . . . . . . . . . . .49
5.13 Tax Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . .50
5.14 Tax Sharing Agreements. . . . . . . . . . . . . . . . . . . . . . . .50
5.15 Survival, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . .50
ARTICLE VI
Conditions to Closing
6.1 Conditions to the Obligations of the Purchaser. . . . . . . . . . . .51
6.2 Conditions to the Obligations of Chiron . . . . . . . . . . . . . . .54
ARTICLE VII
Termination
7.1 Grounds for Termination . . . . . . . . . . . . . . . . . . . . . . .56
7.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . .56
ARTICLE VIII
Indemnification
8.1 Chiron's Indemnification Obligations. . . . . . . . . . . . . . . . .57
8.2 The Purchaser's Indemnification Obligations . . . . . . . . . . . . .58
8.3 Method of Asserting Claims, etc.. . . . . . . . . . . . . . . . . . .59
8.4 Insurance Proceeds; Interest. . . . . . . . . . . . . . . . . . . . .61
8.5 Exclusive Remedy; Survival. . . . . . . . . . . . . . . . . . . . . .61
8.6 Tax Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
ARTICLE IX
Certain Definitions
9.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . .62
ARTICLE X
Miscellaneous
10.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
10.2 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
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10.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
10.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
10.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
10.7 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . .78
10.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .78
10.9 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
10.10 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
10.11 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . .79
10.12 Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . .79
</TABLE>
EXHIBITS
Exhibit A -- Form of Asset Transfer Agreement
Exhibit B -- Form of Cross-License Agreement
Exhibit C -- Reserved
Exhibit D -- Form of Non-Competition Agreement
Exhibit E -- Form of Trademark License Agreement
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.7(a) Excluded Hepatitis/Retrovirus Patents and Know-How
Schedule 1.8(b) Retained Liabilities
Schedule 2.3 Certain Governmental Approvals
Schedule 2.4(a) Subsidiaries of the Company
Schedule 2.4(b) Equity Investments of the Company
Schedule 2.5 Organization and Authority and Directors and Officers
of the Company
Schedule 2.6(b) Capital Stock of the Subsidiaries
Schedule 2.7(a) Financial Statements
Schedule 2.7(b) Bank Accounts
Schedule 2.8 Undisclosed Liabilities
Schedule 2.9(a) Certain Developments of the Company
Schedule 2.9(b) Post-June 30, 1998 Developments of the Company
Schedule 2.10(a) Properties
Schedule 2.10(b) Real Property
Schedule 2.11 Material Contracts
Schedule 2.12 Litigation
Schedule 2.13(a) Company Patents and Patent Applications
Schedule 2.13(b) Chiron Business Related Patents and Patent
Applications
Schedule 2.13(c) Agreements Related to Company Patents and Patent
Applications
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Schedule 2.13(d) Agreements Related to Chiron Business Related Patents
and Patent Applications
Schedule 2.13(e) Certain Patent Matters
Schedule 2.13(g) Currently Funded Research Programs
Schedule 2.13(i) Certain License Matters
Schedule 2.13(j) Probe IVD Products and IVD Products
Schedule 2.14 Trademarks
Schedule 2.15(a) Compliance with Laws
Schedule 2.15(b) Product Registrations List
Schedule 2.15(c) Product Registrations, Manufacturing and Marketing
Schedule 2.15(d) Product Registrations, Ownership
Schedule 2.17(a) Employee Benefit Plans and Agreements
Schedule 2.17(f) Benefit Arrangements
Schedule 2.18 Certain Interests
Schedule 2.19 Intercompany Transactions
Schedule 2.21 Environmental Matters
Schedule 2.22 Business
Schedule 4.2(c) Transfers of Assets
Schedule 4.2(g) Acquisitions
Schedule 4.2(h) Capital Expenditures
Schedule 4.2(q) Certain Employees
Schedule 4.7(a)(i) Chiron Employees
Schedule 4.7(c) Employee Benefit Arrangements to be Honored by
Purchaser
Schedule 5.2(a) Tax Sharing Agreements
Schedule 5.2(b) Tax and Other Returns and Reports
Schedule 5.2(d) Parachute Payments
Schedule 6.1(l) Gen-Probe Allocation
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of September 17, 1998, is made
by and among Bayer Corporation, an Indiana corporation (the "Purchaser"), Chiron
Diagnostics Corporation, a Delaware corporation (the "Company"), and Chiron
Corporation, a Delaware corporation ("Chiron").
RECITALS
A. Chiron owns 10,000 shares of Common Stock, par value $10.00 per
share (the "Stock"), of the Company, constituting all of the issued and
outstanding capital stock of the Company.
B. The Company, directly and through subsidiaries and its parent and
its subsidiaries, is engaged in, among other things, the Immunodiagnostics
Business, the Clinical Chemistry Business, the Critical Care Business, the NAD
Business, the Blood Screening Business and the Informatics Business (as such
terms are hereinafter defined).
C. The Purchaser desires to purchase the Stock, and Chiron desires to
sell the Stock to the Purchaser, provided that prior to the closing of such
purchase certain Excluded Businesses are transferred to Chiron and certain
Included Businesses are transferred to the Company (as such terms are
hereinafter defined), all on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants and conditions contained herein, the
parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions of this Agreement (this and other capitalized terms shall have the
meanings assigned to such terms in Article IX), Chiron shall sell to the
Purchaser,
<PAGE>
and the Purchaser shall purchase from Chiron, the Stock at the Closing and
Chiron shall deliver at the Closing the certificate evidencing the Stock,
properly endorsed, or accompanied by a duly executed stock power duly endorsed,
in blank in proper form for transfer, with appropriate transfer stamps, if any,
affixed.
1.2 PURCHASE PRICE; PAYMENT AT CLOSING. (a) In consideration for
the Stock and as payment in full therefor, the Purchaser shall pay to Chiron
$1,013,800,000 plus the June 1998 Cash and less the June 1998 Third Party Debt,
subject to adjustment as set forth in paragraph (b) of Section 1.3.
(b) At the Closing, the Purchaser shall pay to Chiron by wire
transfer of immediately available funds to an account specified by Chiron an
amount equal to $1,013,800,000 plus $3,074,000 constituting the June 1998 Cash
and less $24,200,000 constituting the June 1998 Third Party Debt (the
"Preliminary Cash Consideration").
1.3 PAYMENT OF CASH CONSIDERATION; CASH CONSIDERATION ADJUSTMENTS.
(a) If the obligations of the parties to proceed with the Closing
set forth in Article VI are satisfied or waived, at the Closing, the Purchaser
shall pay Chiron the Preliminary Cash Consideration by wire transfer of
immediately available funds to a bank account designated by Chiron at least
three Business Days prior to Closing.
(b) (i) Within 60 days after the Closing Date, Chiron shall
deliver to the Purchaser a consolidated balance sheet of the Business as of the
Closing Date, which shall be prepared in accordance with GAAP, as consistently
applied for year-end financial statements and consistent with past practice (the
"Closing Balance Sheet"). The Closing Balance Sheet shall be audited by KPMG
Peat Marwick LLP and shall state, among other things, the Net Assets as of the
Closing Date. The Purchaser shall provide Chiron and its representatives and
agents with reasonable access to the books, records and personnel of the
Business necessary for Chiron to prepare the Closing Balance Sheet. If
requested by Purchaser, a physical inventory of the Business shall be conducted
by Chiron consistent with past practice as of the Closing Date for the purpose
of preparing the Closing Balance Sheet, and the Purchaser and its independent
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auditors shall have the right to observe the taking of such physical inventory.
(ii) During the 60-day period following the Purchaser's
receipt of the Closing Balance Sheet, the Purchaser and its independent auditors
shall be permitted to review the working papers of KPMG Peat Marwick LLP
relating to the Closing Balance Sheet. The Purchaser may dispute the amounts
reflected on the line items of the Closing Balance Sheet (each, a "Disputed
Item"), but only on the basis (i) that a Disputed Item does not reflect, or has
not been calculated in a manner consistent with, the provisions of this
Agreement (including preparation in accordance with GAAP, consistently applied)
or (ii) of mathematical error; PROVIDED, HOWEVER, the Purchaser shall notify
Chiron in writing of each Disputed Item, and specify the amount thereof in
dispute and the basis therefor, within 60 days after receipt of the Closing
Balance Sheet. The failure by the Purchaser to provide a notice of Disputed
Items to Chiron within such 60 day period will constitute the Purchaser's
acceptance of all the items in the Closing Balance Sheet.
(iii) If a notice of Disputed Items shall be timely delivered
pursuant to subparagraph (ii) above, Chiron and the Purchaser shall, during the
10 Business Days following the date of such delivery (the "Resolution Period"),
negotiate in good faith to resolve in writing the Disputed Items. If, by the
end of such Resolution Period, the parties are unable to reach agreement, Chiron
and the Purchaser shall refer all unresolved Disputed Items to Arthur Andersen
LLP, or any other "big five" independent accounting firm (or any of their
successors) as Chiron and the Purchaser shall mutually agree upon (the
"Independent Accountant"). The Independent Accountant shall make a
determination with respect to each unresolved Disputed Item within 15 days after
its engagement by Chiron and the Purchaser to resolve such Disputed Item, which
determination shall be made in accordance with the rules set forth in this
Section 1.3. The Independent Accountant shall deliver to Chiron and the
Purchaser, within such 15 day period, (A) a report setting forth its
adjustments, if any, to the Closing Balance Sheet and the calculations
supporting such adjustments to the Closing Balance Sheet and (B) the resulting
Final Balance Sheet. Such report and Final Balance Sheet shall be final,
binding on the parties hereto and conclusive. Chiron and the Purchaser shall
each pay
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one-half of all the costs incurred in connection with the engagement of the
Independent Accountant.
(iv) If Final Net Assets is less than $371,625,000 (which is
the amount of Net Assets as shown in the June 1998 Balance Sheet), then Chiron
shall pay to the Purchaser the amount of such shortfall. If Final Net Assets is
greater than $371,625,000, then the Purchaser shall pay to Chiron the amount of
such excess.
(v) Any payment required by Chiron or the Purchaser, as the
case may be, under Section 1.3(b)(iv) shall be paid within 10 days after the
determination of the Final Balance Sheet by wire transfer of immediately
available funds in accordance with written instructions given to the Purchaser
or Chiron, as the case may be, together with interest on such amount from the
Closing Date to the date of such payment at a rate equal to the 90 day U.S.
dollar LIBOR rate as published in the WALL STREET JOURNAL on the Closing Date.
1.4 CLOSING. The closing (the "Closing") of the purchase and sale of
the Stock shall take place at the offices of Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004 at 12:01 a.m. on November 2, 1998 or as soon as
possible after the satisfaction or waiver of the conditions set forth in Article
VI, or at such other time and place as the parties shall mutually agree. The
date on which the Closing actually occurs is herein referred to as the "Closing
Date."
1.5 EXCLUDED BUSINESSES. Prior to the Closing and as specifically
set forth in the Asset Transfer Agreement, the following businesses shall be
excluded from the Company (collectively, the "Excluded Businesses"):
(a) the Blood Screening Business;
(b) the Chiron/Ortho Joint Business; and
(c) the Informatics Business.
1.6 INCLUDED BUSINESSES. Prior to the Closing and as specifically
set forth in the Asset Transfer Agreement, the following businesses shall be
included in the Company (collectively, the "Included Businesses"):
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(a) the Immunodiagnostics Business;
(b) the Critical Care Business;
(c) the Clinical Chemistry Business; and
(d) the NAD Business.
1.7 CERTAIN INTELLECTUAL PROPERTY AND OTHER ASSETS.
(a) Notwithstanding anything to the contrary contained herein or
in any Ancillary Agreement, Chiron shall retain, and, if applicable, except as
set forth in paragraph (b) below the Company and the Subsidiaries shall transfer
to Chiron, all right, title and interest in and to the following (the "Excluded
Assets"):
(i) the Excluded Hepatitis/Retrovirus Patents and Know-How;
(ii) the Transferred Company Patents and the Excluded Chiron
Patents; and
(iii) all rights and obligations under the Asset Purchase Agreement,
dated July 19, 1991, between Chiron (as successor to Cetus Corporation) and
Roche Molecular Systems.
(b) Prior to the Closing, Chiron and the Company shall enter into
the Cross-License Agreement.
1.8 CERTAIN OTHER EXCLUDED ASSETS/LIABILITIES. Notwithstanding any
provision in this Agreement or any Ancillary Agreement, Chiron shall retain, and
prior to the Closing the Company and the Subsidiaries shall transfer to Chiron,
the following:
(a) the Roche Litigation and all other litigation relating to the
Excluded Hepatitis/Retrovirus Patents and Know-How and all liabilities, costs
and expenses associated therewith;
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(b) the liabilities set forth in Schedule 1.8(b) (together with
the liabilities set forth in Section 1.8(a), the "Retained Liabilities"); and
(c) except as set forth in Section 4.5, the "Chiron" name, mark
and logo, including the Centaur mark and logo with respect to the image and
related logo but not the "Centaur" name or mark with respect to the "Centaur"
name.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CHIRON AND THE COMPANY
Chiron and the Company represent and warrant to the Purchaser that:
2.1 ORGANIZATION AND AUTHORITY OF CHIRON. Chiron is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Chiron has the requisite corporate power and authority to
execute, deliver and perform this Agreement, the Ancillary Agreements and such
other documents as are contemplated hereunder to be executed and delivered at or
prior to the Closing. The execution, delivery and performance by Chiron of this
Agreement and the Ancillary Agreements and by the Company of any Ancillary
Agreement to which it is to be a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Chiron and/or the Company, as the case may be.
This Agreement constitutes a legal, valid and, assuming due execution and
delivery by the Purchaser, binding obligation of Chiron, enforceable against
Chiron in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting creditors'
rights generally, and to general equitable principles. Upon execution and
delivery of the Ancillary Agreements by the parties thereto other than Chiron or
the Company, such Ancillary Agreements will constitute legal, valid and binding
obligations of Chiron and, with respect to Ancillary Agreements to which the
Company is to be a party, the Company, enforceable against Chiron and/or the
Company, as the case may be, in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally, and to general equitable principles.
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<PAGE>
2.2 NONCONTRAVENTION. The execution, delivery and performance of
this Agreement and the Ancillary Agreements by Chiron, and of the Ancillary
Agreements to which the Company is to be a party, by the Company, and the
consummation of the transactions contemplated hereby and thereby will not
violate or conflict with or constitute a breach or default under (a) the
Certificate of Incorporation or bylaws of Chiron or the Company or the
comparable governing instruments of any Subsidiary or (b) subject to the
governmental filings and other matters set forth in Section 2.3, any law,
regulation, order, rule, statute, ordinance, judgment or decree applicable to
Chiron or the Company or any Subsidiary or their respective properties or
assets.
2.3 NO GOVERNMENTAL CONSENT OR APPROVAL REQUIRED. No
authorization, consent, Permit, approval or other order of, declaration to, or
registration, qualification, designation or filing with, any Governmental Entity
is required for or in connection with the execution, delivery and performance of
this Agreement or any Ancillary Agreement by Chiron or the Company and the
consummation of the transactions contemplated hereby or thereby by Chiron and
the Company, other than (a) the filing of notification under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") and the
expiration or early termination of the waiting period thereunder, (b) the
filings under certain foreign competition laws(the "Foreign Competition Laws"
and together with the HSR Act, the "Competition Laws") and (c) the other
consents, approvals or filings set forth in Schedule 2.3 hereto (the "Certain
Governmental Approvals").
2.4 SUBSIDIARIES; CAPITALIZATION, QUALIFICATION AND LIABILITIES;
JOINT VENTURES.
(a) Schedule 2.4(a) lists each Subsidiary. Schedule 2.4(a)
correctly sets forth the issued and outstanding capital stock of each
Subsidiary, the ownership of the Company or one of its Subsidiaries therein and
the jurisdictions in which the Subsidiaries are organized.
(b) Schedule 2.4(b) lists each corporation, partnership, joint
venture or other entity with respect to which the Company or any Subsidiary
holds or has the right to acquire 20% or more of the capital stock, partnership
or other equity interests of such corporation, partnership, joint venture or
other entity, other than any such interest
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<PAGE>
held by the Company or a Subsidiary as a cash equivalent. Neither Chiron nor
any Other Chiron Affiliate has any equity interest in any entity listed in
Schedule 2.4(b).
2.5 ORGANIZATION AND AUTHORITY OF THE COMPANY AND SUBSIDIARIES.
Except as set forth on Schedule 2.5, the Company and each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all corporate power and authority
to carry on the Business as presently conducted and to consummate the
transactions contemplated hereby and in the Ancillary Agreements. Except as set
forth on Schedule 2.5, the Company and each Subsidiary is qualified to do
business as a foreign corporation in good standing in each jurisdiction where
failure to so qualify would have a Material Adverse Effect. Schedule 2.5
correctly lists the current directors and executive officers of the Company and
of each of the Subsidiaries. True, correct and complete copies of the
respective charter documents of the Company and the Subsidiaries as in effect on
the date hereof have been made available to the Purchaser.
2.6 CAPITALIZATION.
(a) THE COMPANY. The entire authorized capital stock of the
Company consists of 10,000 shares of Common Stock, par value $10.00 per share,
of which 10,000 shares are issued and outstanding. All of the Stock has been
duly authorized and validly issued and is fully paid and nonassessable and was
not issued in violation of any preemptive rights. There are no outstanding
warrants, options, subscription, conversion, preemptive or other rights
entitling any Person to purchase or otherwise acquire any capital stock of the
Company, including the Stock. Chiron owns all of the Stock beneficially and of
record and has good and valid title to all of the Stock, free and clear of all
Liens and, subject to applicable securities laws and Competition Laws, free of
any restriction on its right to transfer or exercise any voting or other right
with respect thereto. At the Closing, the Purchaser will acquire good and valid
title to the Stock, free and clear of any Liens of any nature whatsoever.
(b) THE SUBSIDIARIES. Except as disclosed in Schedule 2.6(b), the
Company owns, directly or indirectly, all of the capital stock of each
Subsidiary beneficially and
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<PAGE>
of record (except for directors' qualifying shares and shares required to be
held by local individuals or local entities pursuant to local law as set forth
on Schedule 2.6(b)) and has good and valid title to all of the capital stock of
each Subsidiary, free and clear of all Liens and, subject to applicable
securities laws and Competition Laws, free of any restriction on its right to
transfer or exercise any voting or other right with respect thereto and all of
such shares of capital stock have been duly authorized and, to the extent
applicable in the jurisdiction in which such Subsidiary was organized, are
validly issued, fully paid and non-assessable and, at the Closing, upon the
consummation of the transactions contemplated hereby and in the Ancillary
Agreements, the Company will continue to have good and valid title to all such
shares of capital stock, free and clear of any Liens of any nature whatsoever.
Except as set forth in Schedule 2.6(b), shares of capital stock of any
Subsidiary held by any local individuals or local entities pursuant to local law
are held, subject to applicable law, free of any restriction on the right to
transfer such shares. There are no outstanding warrants, options, subscription,
conversion, preemptive or other rights entitling any Person to purchase or
otherwise acquire any capital stock of any Subsidiary. There are no outstanding
bonds, debentures, notes or other indebtedness having the right to vote on any
matters on which stockholders of the Company or any Subsidiary may vote.
2.7 FINANCIAL STATEMENTS.
(a) Schedule 2.7(a) sets forth the consolidated balance sheet of
the Company as of December 28, 1997 (the "December 1997 Balance Sheet") and the
consolidated balance sheet of the Business as of June 28, 1998 (the "June 1998
Balance Sheet" and collectively with the December 1997 Balance Sheet, the
"Balance Sheets"), the consolidated statements of operations for the Business
for the year ended December 28, 1997 and for the six months ended June 28, 1998
(the "Statements of Operations") and the consolidated statements of cash flows
for the Company for the year ended December 28, 1997 and for the six months
ended June 28, 1998 (the "Statements of Cash Flow" and, together with the
Balance Sheets and the Statements of Operations, the "Financial Statements").
The Financial Statements have been, and, if applicable, the statements to be
provided in accordance with Section 4.11 will be, prepared in accordance with
GAAP, consistently applied, PROVIDED that, the
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consolidated balance sheet as of and the statements of operations and cash flows
for the six months ended June 28, 1998 are subject to normal year-end
adjustments and PROVIDED FURTHER that the Financial Statements lack footnotes
and other presentation items. The Financial Statements fairly and accurately
present the consolidated financial position of the Company or the Business, as
the case may be, as of the respective dates thereof and the results of
operations of the Business and cash flow of the Company, and in the case of the
Business, after giving effect to the Asset Transfer Agreement and the
consummation of the transactions contemplated thereby (except as they relate to
intangibles), in each case for the respective periods covered thereby. If
applicable, the financial statements to be provided in accordance with
Section 4.11 will fairly and accurately present the consolidated financial
position, results of operations and cash flow of the Business or the Company, as
the case may be, and, in the case of the Business, after giving effect to the
Asset Transfer Agreement and the consummation of the transactions contemplated
thereby (except as they relate to intangibles), in each case as of and for the
period covered thereby.
(b) Chiron has made available to the Purchaser true and complete
accounting books and records, the share issuance and transfer and exchange books
and the minutes of the meetings of the Board of Directors of the Company since
the inception of the Company. Schedule 2.7(b) sets forth each bank account of
the Company.
2.8 UNDISCLOSED LIABILITIES. The Company and its Subsidiaries
have no liabilities (whether accrued, absolute, contingent or otherwise, and
whether due or to become due, probable of assertion or not), in each case after
giving effect to the Asset Transfer Agreement and the consummation of the
transactions contemplated thereby, except for (a) matters identified in Schedule
2.8, (b) liabilities to the extent reflected and reserved for in the June 1998
Balance Sheet, (c) liabilities of a type not required to be reflected in the
June 1998 Balance Sheet in accordance with GAAP and (d) liabilities incurred in
the ordinary course of business consistent with past practice since the date of
the June 1998 Balance Sheet.
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2.9 ABSENCE OF CERTAIN DEVELOPMENTS.
(a) Since the date of the June 1998 Balance Sheet, except as set
forth in Schedule 2.9(a), there has not been (a) any change or event that has
had or may reasonably be expected to have a Material Adverse Effect, (b) any
declaration, setting aside or payment of any dividend or other distribution with
respect to the capital stock of the Company, (c) any loss, destruction or damage
to any property of the Company or the Subsidiaries, whether or not insured,
which had or would reasonably be expected to have a Material Adverse Effect, or
(d) any change in any of the significant accounting policies, practices or
procedures of Chiron or the Company with respect to the Business except for any
change consented to by the Purchaser in accordance with Section 4.2.
(b) Except as set forth in Schedule 2.9(b), from the date of the
June 1998 Balance Sheet to the date hereof, each of Chiron and the Company has
caused the Business to be conducted in the ordinary and usual course consistent
with past practice and has made commercially reasonable efforts consistent with
past practice to preserve intact the Business's relationship with customers,
suppliers and other third parties with whom the Business deals.
2.10 TITLE TO PROPERTIES.
(a) PERSONAL PROPERTY. Except as disclosed in the Financial
Statements or in Schedule 2.10(a), the Company and Subsidiaries have, or prior
to the Closing will have, good and marketable title to, or a valid leasehold
interest in, all of the personal properties and assets held, occupied or used
primarily in the Business free and clear of all Liens other than (a) the lien of
current taxes not yet due and payable, (b) Permitted Liens or (c) such other
Liens which would not be material to the conduct of the Business as currently
conducted with respect thereto. All such personal properties and assets which
are material tangible properties are adequate to conduct the Business as
currently conducted. All the tangible personal property in service of the
Company has been maintained in accordance with the past practices of the Company
and generally accepted industry practices.
(b) REAL PROPERTY. Schedule 2.10(b) lists (i) all real properties
currently owned by the Company or any
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Subsidiary and identifies the record title holder of all such real properties
and (ii) (A) all real properties currently leased, subleased or subsubleased by
the Company and (B) all real properties currently leased, subleased or
subsubleased by any Subsidiary which real properties are used for manufacturing
facilities, research and development facilities or warehouse/distribution
facilities and are used in the Business (the real properties referred to in
(i) and (ii) collectively referred to herein as the "Real Properties"). Chiron
will make available to the Purchaser prior to the Closing copies of the leases,
subleases and subsubleases required to be listed pursuant to clause (ii) of this
Section 2.10(b). Either the Company or a Subsidiary has good and marketable fee
title to (or a valid leasehold, subleasehold or subsubleasehold interest in, as
the case may be) all Real Property shown as owned or leased, subleased or
subsubleased, if applicable, by it on Schedule 2.10(b) that is used in the
Business, free and clear of all Liens other than Permitted Liens, such other
Liens which would not materially adversely affect the continued use of the
property subject to such Liens or the conduct of the Business as currently
conducted thereat and such Liens as are set forth in Schedule 2.10(b). Neither
the Company nor any Subsidiary has received any written notice of assessments
for public improvements or condemnation against any Real Property.
2.11 CONTRACTS. (a) Except as set forth in Schedule 2.11, neither
the Company nor any Subsidiary is a party to or bound by any:
(i) employment agreement or employment contract that provides for
a base salary in excess of $200,000 annually and is not terminable by the
Company or a Subsidiary by notice of not more than 60 days;
(ii) employee collective bargaining agreement or other contract
with any labor union;
(iii) covenant of the Company or a Subsidiary not to compete (other
than pursuant to any radius restriction contained in any lease, reciprocal
easement or development, construction, operating or similar agreement) or
other covenant of the Company or a Subsidiary restricting the development,
manufacture, marketing or distribution by the Company or a Subsidiary of
the products and services of the Company
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or any Subsidiary, other than contracts or agreements entered into in the
ordinary course of business pursuant to which the Company or a Subsidiary
has appointed a third party as an exclusive distributor;
(iv) (A) continuing contract, agreement, instrument, commitment,
understanding or other arrangement for the future purchase of materials,
supplies or equipment or (B) management, service, consulting or other
similar type of contract, agreement, instrument, commitment, understanding
or other arrangement, in any such case which has an aggregate future
liability to any Person in excess of $500,000 annually or $1 million in the
aggregate and is not terminable by the Company or a Subsidiary by notice of
not more than 60 days for a cost of less than $500,000;
(v) agreement, contract, instrument, commitment, understanding or
other arrangement (including so-called take-or-pay or keepwell agreements)
under which (A) any Person has directly or indirectly guaranteed
indebtedness, liabilities or obligations of the Company or a Subsidiary or
(B) the Company or a Subsidiary has directly or indirectly guaranteed
indebtedness, liabilities or obligations of any Person other than the
Company or any Subsidiary (in each case other than endorsements for the
purpose of collection in the ordinary course of business) in any such case
which, individually, is in excess of $500,000;
(vi) material mortgage, pledge, security agreement, deed of trust
or other instrument or arrangement granting or purporting to grant a Lien
or other encumbrance upon any Company real or personal property, which Lien
or other encumbrance is required to be set forth in Schedule 2.10(a) or
2.10(b);
(vii) agreement, contract, instrument, commitment, understanding or
other arrangement providing for indemnification of any Person in connection
with purchases or sales of assets involving aggregate consideration in
excess of $10 million (other than sales or leases of inventory in the
ordinary course of business and other than with respect to indemnification
for liabilities or obligations arising post-closing with respect to the
business acquired); or
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(viii) other agreement, contract, lease, license, commitment,
instrument, understanding or arrangement to which the Company or any
Subsidiary is a party or by or to which it or any of its assets, properties
or business is bound or subject which (A) is material to the continued
conduct of the Business as currently conducted or (B) has an aggregate
future liability to any person in excess of $1 million annually or $3
million in the aggregate and is not terminable by the Company by notice of
not more than 60 days for a cost of less than $1 million.
(b) Except as disclosed in Schedule 2.11, each contract required
to be listed in Schedule 2.11 hereto (the "Material Contracts") is in full force
and effect; and no breach or default or event which would (with the passage of
time, notice or both) constitute a breach or default thereunder by the Company
or such Subsidiary, as the case may be, or, to the Knowledge of Chiron or the
Company, any other party or obligor with respect thereto, exists and is
continuing which in each case would reasonably be expected to materially impair
the benefits expected to be derived therefrom. The execution, delivery and
performance of this Agreement and the Ancillary Agreements and the consummation
of the transactions contemplated hereby and thereby will not result in a breach
of or default under any Material Contract, will not (and will not give any
Person a right to) terminate or modify any rights of, or accelerate or augment
any obligation of, the Company or any Subsidiary, and do not require any
consent, approval, waiver or other action by any party to any such Material
Contract, other than the consents and approvals identified in Schedule 2.11 (the
"Material Contract Approvals"). None of Chiron, the Company or any Subsidiary
has entered into any contract or commitment with any customer or potential
customers (oral or written) with regard to the availability of HIV or HCV
immunoassays on the Centaur System.
2.12 LITIGATION. (a) Except as disclosed in Schedule 2.12, there
is no written claim, filed complaint, arbitration, action, suit, proceeding or
investigation (which, in the case of claims, complaints, actions or suits, have
been served on Chiron, the Company or any Subsidiary) pending or, to the
Knowledge of Chiron or the Company, threatened, against Chiron, the Company, any
Subsidiary or any of their respective properties, assets or operations, in each
case affecting the Business, which (i) relate to or
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involve in excess of $50,000, (ii) seek any injunctive relief or (iii) seek to
prevent or challenge in any other manner the consummation of the transactions
contemplated hereby or in the Ancillary Agreements. Except as set forth in
Schedule 2.12, none of the lawsuits or claims listed in Schedule 2.12, if
resolved adversely to Chiron, the Company or any Subsidiary, as the case may be,
would reasonably be expected to have a Material Adverse Effect. There is no,
and during the past two years there has not been any, organized labor strike,
dispute, slowdown or stoppage, or collective bargaining or unfair labor practice
claim pending, or to the Knowledge of Chiron or the Company, threatened, against
or affecting the Company or any Subsidiary, nor are there, to the Knowledge of
Chiron or the Company, any union organizing efforts in the United States with
respect to employees of the Company or any Subsidiary. Neither Chiron nor the
Company has received notice from any Governmental Entity responsible for the
enforcement of labor or employment laws to conduct an investigation of the
Business, the Company or any Subsidiary and, to the Knowledge of Chiron or the
Company, no such investigation is in progress.
(b) Except as set forth in Schedule 2.12, the Company is not a
party or subject to or in default under any judgment, order, injunction or
decree of any Governmental Entity or arbitration tribunal applicable to the
Business.
(c) Except as set forth in Schedule 2.12, there is no lawsuit or
claim by the Company pending, or which the Company or Chiron on behalf of the
Company intends to initiate prior to the Closing, against any other Person,
which lawsuit or claim relates to the Business. The Company and Chiron have
made available to the Purchaser copies of all court papers and other documents
with respect to matters referenced in Schedule 2.12, except for any court papers
or other documents that either Chiron or the Company is not permitted by court
order to disclose.
2.13 PATENTS AND PATENT APPLICATIONS.
(a) Attached as Schedule 2.13(a) hereto is a list of all patents
and patent applications owned by the Company or any Subsidiary. Schedule
2.13(a) is divided into three parts: Part I, a list of all such patents and
patent applications which are among the Excluded Hepatitis/Retrovirus Patents;
Part II, a list of all such
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patents and patent applications which relate primarily to or primarily are used
in connection with the Excluded Businesses or the Vaccines/Therapeutics Business
(the "Transferred Company Patents"); and Part III, a list of all other such
patents and patent applications (the "Included Company Patents").
(b) Attached as Schedule 2.13(b) hereto is a list of all patents
and patent applications owned by Chiron or any Other Chiron Subsidiary which are
related to the continued conduct of the Business, including patents and patent
applications that cover Products or Products in Development, but excluding
patents or patent applications which do not cover Products or Products in
Development and may cover Future Products. Schedule 2.13(b) is divided into two
parts: Part I, a list of all such patents and patent applications which relate
primarily to or primarily are used in connection with the Business (the
"Transferred Chiron Patents"), and Part II, a list of all other such patents and
patent applications (the "Excluded Chiron Patents").
(c) Attached as Schedule 2.13(c) hereto is a list of all Company
Licenses which are either (i) material to the continued conduct of the Business
as currently conducted or (ii) which pursuant to their terms impose payment
obligations on the Company or any Subsidiary in excess of $500,000 annually or
$1,000,000 in the aggregate. Schedule 2.13(c) is divided into two parts: Part
I, a list of all such licenses which are among the Transferred Company Licenses,
and Part II, all such licenses which are among the Included Company Licenses
(the "Material Included Company Licenses").
(d) Attached as Schedule 2.13(d) hereto is a list of all Chiron
Licenses which are material to the continued conduct of the Business as
currently conducted. Schedule 2.13(d) is divided into two Parts: Part I, a
list of all such licenses which are among the Excluded Chiron Licenses, and Part
II, a list of all such licenses which are among the Transferred Chiron Licenses
(the "Material Transferred Chiron Licenses").
(e) Except as disclosed in Schedule 2.13(e), since January 1, 1995
none of Chiron, the Company, nor any Subsidiary has received any written (or, to
the Knowledge of Chiron or the Company, oral) notice alleging that Chiron, the
Company, any Subsidiary or any of the Other Chiron
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Subsidiaries has infringed any patents or patent applications or has
misappropriated any trade secrets of any other Person in connection with the
operation of the Business.
(f) As of the Closing, after giving effect to the consummation of
the transactions contemplated by the Asset Transfer Agreement and the
Cross-License Agreement and subject to the receipt of the Chiron License
Approvals, the Company or a Subsidiary will have ownership of or a license to
all patents and patent applications (including process patents) owned
immediately prior to the Closing Date by Chiron or any Chiron Subsidiary which
are related to the continued conduct of the Business including patents and
patent applications that cover Products or Products in Development, but
excluding patents or patent applications which do not cover Products or Products
in Development and may cover Future Products.
(g) Attached as Schedule 2.13(g) hereto is a list of (i) all
currently funded research programs of Chiron or a Chiron Subsidiary for the
Business as currently conducted or as contemplated as of the date hereof to be
conducted and (ii) all other research programs of Chiron or a Chiron Subsidiary
for the Business which were funded at any time during the period from January 1,
1995 through the date hereof. The patents and patent applications listed on
Schedule 1.7(a) and included in the definition of Excluded Hepatitis/Retrovirus
Patents and Know-How consist solely of (a) the patents and patent applications
currently licensed to the Chiron/Ortho Joint Business under the Chiron/Ortho
Agreement, and (b) all other patents and patent applications of Chiron or any
Chiron Subsidiary which exclusively relate to HCV or HIV.
(h) Except as disclosed in Schedule 2.12 or Schedule 2.13(e) and
subject to existing third party licenses, Chiron, the Company or a Subsidiary,
as the case may be, has the sole and exclusive rights to enforce, transfer in
whole or in part by license, assignment or otherwise, and enjoy the benefits of,
without payment to any other person, the Included Company Patents and the
Transferred Chiron Patents; and, except as expressly provided in the Ancillary
Agreements, the consummation of the transactions contemplated hereby and by the
Ancillary Agreements will not conflict with, alter or impair any such rights;
neither Chiron, the Company nor any Subsidiary has
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received any written notice challenging the ownership, validity or
enforceability of or making any other claim with respect to the Included Company
Patents or the Transferred Chiron Patents; and the Included Company Patents and
the Transferred Chiron Patents are free and clear of any Liens other than
Permitted Liens.
(i) Except as disclosed in Schedule 2.13(i), each Material
Transferred Chiron License and each Material Included Company License is in full
force and effect; and no breach or default or event which would (with the
passage of time, or notice, or both) constitute a breach or default thereunder
by Chiron, the Company or any Subsidiary, as the case may be, or to the
Knowledge of Chiron or the Company, any other party thereto, exists and is
continuing which in each case would reasonably be expected to materially impair
the benefits expected to be derived therefrom. The execution, delivery and
performance of this Agreement and the Ancillary Agreements and the consummation
of the transactions contemplated hereby and thereby will not (and will not give
any Person a right to) terminate or modify the rights of Chiron, the Company or
any Subsidiary and do not require any consent, approval, waiver or other action
by any party to any such Chiron License or Company License, other than the
consents and approvals identified in Schedule 2.13(i) (the "Company License
Approvals" and the "Chiron License Approvals").
(j) Except as set forth in Schedule 2.13(j), neither Chiron nor
any Other Chiron Affiliate is a party to any agreement pursuant to which any
license under any Licensed Chiron Patents is granted to a third party with
respect to Probe IVD Products, in the case of Chiron HCV/HIV Patents, or with
respect to IVD Products, in the case of Chiron Non-HCV/HIV Patents (in each case
as such terms are defined in the Cross-License Agreement).
(k) The representations and warranties made in this Section 2.13
are Chiron's exclusive representations and warranties relating to patent and
patent application matters.
2.14 TRADEMARKS AND OTHER INTELLECTUAL PROPERTY. Attached as
Schedule 2.14 hereto is a list of all Trademarks owned by Chiron, the Company or
any Subsidiary which are used primarily in connection with the Business which,
in the case of any such Trademarks owned by Chiron, shall be
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transferred to the Company prior to the Closing on the terms set forth in the
Asset Transfer Agreement. Such Trademarks are free and clear of any Liens other
than Permitted Liens. Schedule 2.14 sets forth a list of registrations as well
as all jurisdictions in which such Trademarks are registered or applied for and
all registration and application numbers. Except as disclosed in Schedule 2.14,
neither the Company nor any Subsidiary has received any written (or, to the
Knowledge of Chiron or the Company, oral) notice challenging the Company's
rights or making any other claim with respect to any Other Intellectual
Property. The representations and warranties made in this Section 2.14 are
Chiron's exclusive representations and warranties relating to Trademarks and
Other Intellectual Property.
2.15 COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS; PRODUCT
REGISTRATIONS. (a) Except as set forth in Schedule 2.15(a), the Company and
each Subsidiary is in compliance in all material respects with all material
laws, regulations, orders, judgements and decrees of any Governmental Entity
which are applicable to the Business. The Company and the Subsidiaries hold all
Permits that are necessary to conduct the Business, taken as a whole, as
currently conducted and to use the properties and assets of the Business taken
as a whole as presently used. Except as disclosed in Schedule 2.15(a), each
material Permit held by the Company and/or any Subsidiary is valid and in full
force and effect. No suspension, cancellation or termination of any of such
material Permits is pending or, to the Knowledge of Chiron or the Company, is
threatened or imminent.
(b) The Company and its Subsidiaries have all Product
Registrations required to market and sell the Business's important Products in
each Major Market in which the annual revenues of such important Product in such
Major Market exceeds $100,000. Schedule 2.15(b) sets forth a list of all
Product Registrations held by Chiron or any Chiron Subsidiary for the important
Products in each Major Market in which the annual revenues of such important
Product in such Major Market exceeds $100,000. For the purposes of this
Section 2.15, an "important" Product is a Product with respect to which
aggregate worldwide annual revenues exceed $5 million.
(c) Except as set forth in Schedule 2.15(c), all important
Products sold under the Product Registrations are manufactured and marketed in
all material respects in
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accordance with the specifications and standards contained in such Product
Registrations.
(d) Except as set forth in Schedule 2.15(d), Chiron, the Company
or a Subsidiary is the sole and exclusive owner of the Product Registrations and
has not granted any right of reference with respect thereto.
2.16 [RESERVED]
2.17 EMPLOYEE BENEFIT PLANS. (a) All benefit and compensation
plans, contracts, policies or arrangements maintained by Chiron, the Company or
the Subsidiaries which cover current or former U.S. employees of the Company and
the Subsidiaries including Company employees in Puerto Rico (the "U.S.
Employees"), including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and deferred compensation, stock option, stock purchase,
stock appreciation rights, stock based, incentive, bonus and fringe benefit
plans (the "Benefit Plans"), are listed in Schedule 2.17(a). True and complete
copies of all Benefit Plans and (i) any trust instruments and insurance
contracts forming a part of any Benefit Plan, (ii) all amendments to such
Benefit Plans and (iii) the most recent annual report on Form 5500 and summary
plan description, where applicable for each Benefit Plan have been provided or
made available to Purchaser.
(b) All employee benefit plans maintained by Chiron, the Company
or the Subsidiaries which cover U.S. Employees (the "Plans"), are in substantial
compliance with ERISA and the Code, as applicable. Each Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under Section 401(a) of
the Code, has received a favorable determination letter from the Internal
Revenue Service with respect to "TRA" (as defined in Section 1 of Rev. Proc.
93-39), and to the Knowledge of Chiron and the Company there are no
circumstances likely to result in revocation of any such favorable determination
letter. There is no pending or, to the Knowledge of Chiron or the Company,
threatened litigation relating to the Plans. Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
could subject the Company or any Subsidiary to a tax
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or penalty imposed by either Section 4975 of the Code or Section 502(i) of
ERISA.
(c) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by the Company or any of the Subsidiaries
with respect to any ongoing, frozen or terminated "single employer plan", within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any of them, or the single employer plan of any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA Affiliate"). Neither the Company, any of the Subsidiaries nor an
ERISA Affiliate has maintained or contributed to at any time during the
five-year period preceding the date of this Agreement any employee pension
benefit plan which is a multi employer plan, within the meaning of Section 3(37)
of ERISA, which is subject to Title IV of ERISA. No notice of a "reportable
event," within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed with
respect to any Pension Plan during the 12-month period ending on the date
hereof.
(d) All contributions required to be made under the terms of any
Benefit Plan have been timely made or have been reflected on the Financial
Statements. Neither any Pension Plan nor any single employer plan of an ERISA
Affiliate has an "accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA
Affiliate has an outstanding funding waiver.
(e) Neither the Company nor any of the Subsidiaries has any
obligations for retiree health and life benefits under any Benefit Plan.
(f) Except as set forth in Schedule 2.17(f), the consummation of
the transactions contemplated by this Agreement will not (i) entitle any
employees of the Company or any of the Subsidiaries to severance pay,
(ii) accelerate the time of payment or vesting or trigger any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any of the Benefit Plans or (iii) result in any breach or violation of, or a
default under, any of the Benefit Plans.
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(g) All benefit and compensation plans, contracts, policies or
arrangements covering current or former foreign employees of the Company and the
Subsidiaries are in compliance in all material respects with applicable local
law, and there are no material unfunded liabilities thereunder for which the
Company or any of the Subsidiaries could be liable.
2.18 CERTAIN INTERESTS. Except as set forth in Schedule 2.18 or as
covered by Section 2.17, there are no contracts, agreements or arrangements
between the Company or any Subsidiary, on the one hand, and officers or
directors of the Company, Chiron or any Other Chiron Affiliate, on the other
hand. Except as set forth in Schedule 2.18, no officer or director of Chiron,
the Company or any Subsidiary is indebted or otherwise obligated to the Company
or any Subsidiary; and neither the Company nor any Subsidiary is indebted or
otherwise obligated to any such officer or director, except for amounts due
under normal arrangements applicable to all employees generally as to salary or
reimbursement of ordinary business expenses incurred in the ordinary course of
business consistent with past practice and not in violation of this Agreement.
2.19 INTERCOMPANY TRANSACTIONS. Schedule 2.19 lists (a) all of the
goods and services currently provided to the Business by Chiron or any Other
Chiron Affiliate, (b) all of the goods and services currently provided to Chiron
or any Other Chiron Affiliate by the Company or a Subsidiary, (c) all
liabilities or obligations of the Company and the Subsidiaries to Chiron or any
Other Chiron Affiliate, (d) all liabilities or obligations of Chiron or any
Other Chiron Affiliate to the Company or any of its Subsidiaries and (e) all
other contracts, agreements or arrangements between the Company or any
Subsidiary, on the one hand, and Chiron or any Other Chiron Affiliate, on the
other hand. Except as expressly contemplated hereby or by any Ancillary
Agreement, the consummation of the transactions contemplated by this Agreement
and by the Ancillary Agreements will not (either alone, or upon the occurrence
of any act or event, or with the lapse of time, or both) result in any payment
arising or becoming due from the Company or any Subsidiary to Chiron or any
Other Chiron Affiliate.
2.20 NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker (other than
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Credit Suisse First Boston Corporation with respect to its engagement by Chiron,
Deutsche Morgan Grenfell, Inc. and Cowen & Company), as to whose fees and
expenses Chiron shall have full responsibility and neither the Company nor any
Subsidiary nor the Purchaser shall have any responsibility) or other Person or
firm engaged by or acting on behalf of Chiron or the Company or any of their
respective Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement or such transaction.
2.21 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 2.21
or as would not be material to the continued conduct of the Business as
currently conducted, (i) the Company and the Subsidiaries are in compliance with
all Environmental Laws; (ii) the Company and the Subsidiaries have not received
any written notices from any Governmental Entity or other Person alleging the
violation of or liability under any applicable Environmental Laws other than for
matters that have been fully resolved; (iii) the Company and the Subsidiaries
are not subject to any court order, administrative order or decree arising under
any Environmental Law; (iv) the Company and the Subsidiaries have not released,
spilled or disposed of any Hazardous Substance on any property owned or operated
by them, except for releases and spills that are not reportable under applicable
Environmental Laws; (v) the Company and the Subsidiaries have not had or caused
any emissions or discharges of any Hazardous Substances except as permitted
under applicable Environmental Laws; (vi) the Company and the Subsidiaries have
not received any written claim or notice regarding potential responsibility for
Hazardous Substance off-site disposal pursuant to the Federal Comprehensive
Environmental Response, Compensation, and Liability Act or other Environmental
Law; and (vii) to the Knowledge of Chiron or the Company, no property owned or
operated by the Company or the Subsidiaries is contaminated with any Hazardous
Substance which contamination requires investigation or remediation under
Environmental Laws. The representations and warranties made in this Section
2.21 are Chiron's exclusive representations and warranties relating to
environmental matters.
2.22 BUSINESS. Except as set forth in Schedule 2.22 or as
otherwise expressly provided in the Ancillary
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Agreements, taken together, the properties, assets and rights of the Company and
the Subsidiaries, including the properties, assets and rights to be transferred
to the Company under the Ancillary Agreements, constitute all the properties,
assets and rights which are used in the Business or are necessary to conduct the
Business, taken as a whole, as being conducted on the date of this Agreement and
are sufficient for the conduct of the Business, taken as a whole, immediately
following the Closing in substantially the same manner as currently conducted.
It is understood that the representation set forth in this Section 2.22 does not
relate to assets, properties and rights which are the subject of the specific
representations and warranties set forth in Sections 2.13, 2.14 and 2.15(b)
above.
2.23 INSURANCE. Chiron or the Company and the Subsidiaries
maintain policies of fire and casualty, liability and other forms of insurance
in such amounts, with such deductibles and against such risks and losses as are,
in Chiron's judgment, reasonable for the business and assets of the Company and
the Subsidiaries.
2.24 PRIVATE OFFERING. None of Chiron, the Company or any of their
respective Affiliates nor anyone acting on their behalf has issued, sold or
offered any security of the Company to any Person under circumstances that would
cause the issuance and sale of the Stock, as contemplated by this Agreement, to
be subject to the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). None of Chiron, the Company or any of their
respective Affiliates nor anyone acting on their behalf will offer the Stock or
any part thereof or any similar securities for issuance or sale to, or solicit
any offer to acquire any of the same from, anyone so as to make the issuance and
sale of the Stock subject to the registration requirements of Section 5 of the
Securities Act. Assuming the representations of the Purchaser contained in
Section 3.5 are true and correct, the issuance, sale and delivery of the Stock
hereunder are exempt from the registration and prospectus delivery requirements
of the Securities Act.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to Chiron that:
3.1 ORGANIZATION AND AUTHORITY. The Purchaser has the requisite
corporate power and authority to execute, deliver and perform this Agreement,
the Ancillary Agreements to which it is to be a party and such other documents
as are contemplated hereunder to be executed and delivered at or prior to the
Closing. The execution, delivery and performance by the Purchaser of this
Agreement and any Ancillary Agreement to which the Purchaser is to be a party
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement constitutes a legal, valid and, assuming due
execution and delivery by Chiron and the Company, binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting creditors' rights generally and to general equitable
principles. Upon execution and delivery of the Ancillary Agreements to which
the Purchaser is to be a party by the parties thereto (other than the
Purchaser), such Ancillary Agreements will constitute legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting creditors' rights
generally, and to general equitable principles.
3.2 NONCONTRAVENTION. The execution, delivery and performance by
the Purchaser of this Agreement and the Ancillary Agreements to which it is to
be a party and the consummation of the transactions contemplated hereby and
thereby will not violate or conflict with, or constitute a breach or default
(whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under (a) the charter documents of the Purchaser or (b) subject to
the governmental filings and other matters set forth in Section 3.3, any law,
regulation, order, judgment, or decree applicable to the Purchaser.
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3.3 NO GOVERNMENTAL CONSENT OR APPROVAL REQUIRED. No
authorization, consent, Permits, approval or other order of, declaration to, or
registration, qualification, designation or filing with, any Governmental Entity
or any other Person is required for or in connection with the execution,
delivery and performance by the Purchaser of this Agreement or any Ancillary
Agreement to which the Purchaser is to be a party and the consummation of the
transactions contemplated hereby and thereby, other than the filing of
notification under the HSR Act and the filings under the Foreign Competition
Laws.
3.4 FINANCIAL CAPABILITY. On the Closing Date, the Purchaser will
have sufficient funds to make the payment of the Preliminary Cash Consideration
on the terms and conditions contemplated by this Agreement.
3.5 PURCHASE FOR INVESTMENT. The Purchaser is purchasing the
Stock for investment for its own account and not with a view to, or for sale in
connection with, the distribution thereof. The Purchaser acknowledges that the
Stock is not registered under the Securities Act, any applicable state
securities laws or any applicable foreign securities laws, and that the Stock
may not be transferred or sold except pursuant to the registration provisions of
the Securities Act or applicable foreign securities laws or pursuant to an
applicable exemption therefrom and pursuant to state securities laws as
applicable.
ARTICLE IV
COVENANTS
4.1 COOPERATION AND ACCESS. From and after the date hereof, upon
reasonable advance notice, Chiron and the Company shall permit, and shall cause
each of their respective subsidiaries to permit, the Purchaser and its
representatives to have access, during regular business hours, to the assets,
employees, books and records of Chiron and the Company relating to the Business
and shall furnish, or cause to be furnished, to the Purchaser and its
representatives such financial, tax and operating data and other available
information with respect to the Business as the Purchaser shall from time to
time reasonably request; PROVIDED, HOWEVER, that no such access shall
unreasonably interfere with the operation of the Business; PROVIDED
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FURTHER that all information received by any party and given by or on behalf of
any other party and its subsidiaries in connection with this Agreement and the
transactions contemplated hereby shall be held by the first party and its
Affiliates, agents and representatives confidential pursuant to the terms of the
Confidentiality Agreement.
4.2 CONDUCT OF BUSINESS. From the date hereof until the Closing,
except as the Purchaser shall otherwise consent in writing, which consent shall
not be unreasonably withheld, Chiron agrees that it shall cause the Company and
the Subsidiaries to conduct the Business in the ordinary and usual course
consistent with past practice, and use their commercially reasonable effort
consistent with past practice to preserve intact the Business and related
relationships with customers, suppliers and other third parties with whom the
Business deals. From the date hereof until the Closing, except as otherwise
contemplated herein or as provided for in any Ancillary Agreement or as the
Purchaser shall otherwise consent in writing, which consent shall not be
unreasonably withheld, Chiron agrees that it shall not permit the Company or any
Subsidiary to and the Company and the Subsidiaries shall not:
(a) issue or transfer any capital stock of the Company or any
Subsidiary or any security convertible into or exchangeable for any such
capital stock or any right to acquire any such capital stock;
(b) make any change in its certificate of incorporation or
bylaws (or equivalent governing instruments);
(c) dispose of, lease or license or sublicense (each, a
"transfer") any of its assets or property except for (i) the sale of
inventory in the ordinary course of business consistent with past practice,
(ii) forward sales permitted by 4.2(o), (iii) any transfer of assets or
properties constituting the Excluded Businesses effected pursuant to the
Asset Transfer Agreement, (iv) dispositions set forth in Schedule 4.2(c),
(v) non-exclusive transfers of biological materials manufactured by the
Business for non-commercial use pursuant to material transfer agreements
("MTA"s) in the ordinary course of business consistent with past practice
and (vi) transfers of tangible assets or property for consideration in
excess
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of $1.0 million in the aggregate; PROVIDED that no such transfer or
subsequent transaction shall prevent the grant of any licenses contemplated
in the Cross-License Agreement or otherwise conflict with or violate any
provisions set forth in the Cross-License Agreement;
(d) incur or assume any liabilities, obligations or
indebtedness for borrowed money or guarantee any such liabilities,
obligations or indebtedness other than in the ordinary course of business
consistent with past practice;
(e) liquidate, dissolve or otherwise reorganize or seek
protection from creditors;
(f) adopt, establish or enter into any new employee
compensation or benefit plan or make any new grants (except in the ordinary
and usual course of business) under any Benefit Plan, or, except as
required by law, amend in any respect any Benefit Plan to the extent such
amendment would increase the liabilities of the Purchaser, the Company or
any Subsidiary;
(g) acquire all or any portion of the securities, assets,
business or properties of any other Person, except for capital expenditures
permitted pursuant to 4.2(h), except for inventory acquired in the ordinary
course of business consistent with past practice, except as set forth in
Schedule 4.2(g) and except for such other acquisitions of assets and
properties in the aggregate not to exceed $2.5 million;
(h) make or incur any capital expenditures, except for the
capital expenditures set forth in Schedule 4.2(h), and, if the Closing
occurs after December 31, 1998, a proportionate amount of such capital
expenditures for the period after January 1, 1999 until the Closing Date;
(i) enter into any lease for real property, except renewals
of existing leases in the ordinary course of business consistent with past
practice, with respect to which the Purchaser shall have the right to
participate in the negotiation with respect thereto;
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(j) pay, loan or advance any amount to, or sell, transfer or
lease any of its assets to (except for assets primarily related to used or
held for use primarily in connection with the Excluded Businesses), enter
into any contract or agreement or engage in any other type of transaction
with Chiron or any Other Chiron Affiliate other than in the ordinary course
of business consistent with past practice;
(k) grant to any director or executive officer any increase
in compensation or benefits not required by a plan or arrangement as in
effect on the date of this Agreement, except for any increases for which
Chiron shall be solely obligated;
(l) permit, allow or suffer any of its assets to become
subjected to any Lien or other similar restriction of any nature whatsoever
which would have been required to be set forth in Schedule 2.10(a) or
Section 2.10(b) if existing on the date of this Agreement;
(m) make any change in any method of accounting or accounting
practice or policy;
(n) engage in any forward selling by offering discount prices
or extended payment terms so as to cause its customers to purchase products
in excess of their normal purchases;
(o) engage in any transactions under the Heller Agreement,
the Sanwa Agreements or any similar agreement or arrangement, except
transactions resulting in a gross profit to the Company not to exceed
$1.75 million in each quarter beginning with the fourth quarter of fiscal
1998 with such transactions to occur only at the end of any such quarter;
or
(p) take any action which would prevent the grant of any
license contemplated by the Cross-License Agreement or otherwise conflict
with any provision set forth therein;
(q) solicit or hire any employee of the Company or any
Subsidiary, except for those employees set forth in Schedule 4.2(q) or
Schedule 4.7(a)(ii);
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(r) increase its equity investment or ownership interest or
participation in any entity set forth in Schedule 2.4(b); or
(s) agree or commit, whether in writing or otherwise, to do
any of the foregoing.
4.3 COMMERCIALLY REASONABLE EFFORTS; GOVERNMENT APPROVALS. (a)
Upon the terms and subject to the conditions herein provided, each of the
parties hereto agrees to use its commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary for it to do under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, (i) to comply promptly with all legal requirements which may
be imposed on it with respect to this Agreement and the transactions
contemplated hereby (which actions shall include, without limitation, furnishing
all information required by applicable laws and regulations in connection with
approvals of or filings with any Governmental Entity), (ii) to satisfy the
conditions precedent to the obligations of the parties hereto and (iii) to
obtain any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity or other public or private third party required to be
obtained or made by the Purchaser, Chiron, the Company or any Subsidiary in
connection with the acquisition of the Stock or the taking of any action
contemplated by this Agreement or any Ancillary Agreement.
(b) Subject to appropriate confidentiality protections, each of
the parties hereto shall furnish to the other party such necessary information
and reasonable assistance as such other party may reasonably request in
connection with the foregoing and shall provide the other party with copies of
all filings made by such party with any Governmental Entity and, upon request,
any other information supplied by such party to a Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
(c) Without limiting the generality of the foregoing, the
Purchaser and Chiron agree to take or cause to be taken the following actions:
(i) provide promptly to Governmental Entities with regulatory jurisdiction over
enforcement of any applicable Competition Laws
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("Governmental Antitrust Entity") information and documents requested by any
Governmental Antitrust Entity or necessary, proper or advisable to permit
consummation of the acquisition of the Stock and the transactions contemplated
by this Agreement and (ii) without in any way limiting the other provisions of
this Section 4.3, file any notification and report form and related material
required under the HSR Act and with respect to the filings required under the
Foreign Competition Laws as soon as practicable and in any event not later than
10 Business Days after the date hereof, and thereafter use its commercially
reasonable efforts to certify as soon as practicable its substantial compliance
with any requests for additional information or documentary material that may be
made under the HSR Act. Each party hereto shall provide to the other copies of
all correspondence between it (or its advisor) and any Governmental Antitrust
Entity relating to the acquisition of the Stock or any matters described in this
Section 4.3. Each party hereto will notify the other of all requests, terms or
conditions made or sought to be imposed on the Purchaser, the Company or any
Subsidiary in connection with obtaining any required approvals and will discuss
with the other party the acceptability of such requests, and the Purchaser will
consult with Chiron on the response to such requests. Each party hereto agrees
that the other party shall have the right to participate in any meeting between
the first party and any Governmental Antitrust Entity relating to the
acquisition of the Stock or any matters described in this Section 4.3.
4.4 SERVICES; INTER-COMPANY AGREEMENTS; ASSUMPTION OF CERTAIN
OBLIGATIONS. (a) Following the Closing, at the Purchaser's request, Chiron
shall provide the Purchaser, for the benefit of the Company, such services as
were provided to the Business prior to the Closing, but only as are reasonably
required by the Purchaser during the period that the Purchaser is diligently
pursuing the transition of the employees of the Company and the Business over to
its own services and operations up to a maximum of six months for human
resources and up to a maximum of 12 months for all other such services. Such
services shall be provided at a rate equal to Chiron's fully allocated cost
consistent with past practice. The Purchaser shall indemnify, defend and hold
harmless Chiron and the Other Chiron Affiliates from and against any and all
Losses arising out of or attributable to the provision of all services provided
under this Section 4.4(a), other than for
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Losses arising out of or attributable to Chiron's or any Other Chiron
Affiliate's gross negligence.
(b) Following the Closing, at Chiron's request, the Purchaser
shall provide or cause the Company to provide Chiron such services as were
provided to Chiron or any of the Excluded Businesses prior to the Closing
(including, without limitation, reference lab services), but only as are
reasonably required by Chiron during the period that Chiron is diligently
pursuing the transition of such services to its own services and operations or
the services and operations of some other Person up to a maximum of six months
for human resources and up to a maximum of 12 months for all other such
services. Such services shall be provided at a rate equal to the Company's
fully allocated cost consistent with past practice. On or prior to the date
10 days before the Closing, Chiron shall provide written notice to the Purchaser
of the services Chiron requests pursuant to this Section 4.4(b). Chiron shall
indemnify, defend and hold harmless the Purchaser, the Company and its
Affiliates from and against any and all Losses arising out of or attributable to
the provision of all services provided under this Section 4.4(b), other than for
Losses arising out of or attributable to the Purchaser's, the Company's or any
of its Affiliates' gross negligence.
(c) Except as set forth in this Section 4.4, all agreements,
contracts or other arrangements set forth on Schedule 2.19 will be terminated as
of the Closing.
(d) The Purchaser agrees to assume the obligations of Chiron or
any Other Chiron Affiliate under any and all (i) guarantees relating to Third
Party Debt (excluding restructuring costs) or (ii) guarantees, standby letters
of credit or performance bonds disclosed on Exhibit 2.11(b) to Schedule 2.11
hereto (other than those relating to worker's compensation) on or as soon as
possible following the Closing Date.
4.5 USE OF CHIRON NAME. The Purchaser shall cause the Company and
the Subsidiaries within 12 months of the Closing Date to change the corporate
names of the Company and such Subsidiaries to eliminate the name "Chiron" or any
similar word. Following the Closing, the Company and the Subsidiaries shall
have the right to continue to use the Chiron name and mark (a) as part of their
corporate names for such 12 months and (b) as affixed to products, labeling,
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packaging materials or promotional materials as of the Closing Date until the
later of (i) depletion of existing inventories or (ii) the date on which any
requisite regulatory approvals are obtained in connection with the removal of
the Chiron name from the foregoing; PROVIDED that such use under this clause (b)
shall in no event continue longer than two years following the Closing; all as
more fully set forth in the Trademark License Agreement. The Purchaser will use
its commercially reasonable efforts to secure any such requisite regulatory
approvals as promptly as practicable following the Closing Date.
4.6 CONFIDENTIALITY. Each party hereto, at all times prior to the
Closing and after any termination of this Agreement, will hold all confidential
information provided to such party by or on behalf of the other party hereto in
confidence pursuant to the terms of the Confidentiality Agreement. Upon any
termination of this Agreement, each party hereto will promptly return to the
other party such information provided to the first party, including any copies
of such information. Each party hereto acknowledges that the other party would
be irreparably harmed by a breach of this Section 4.6 and that there would be no
adequate remedy at law or in damages to compensate the other party for any such
breach and agrees that, in addition to any other remedy, the other party shall
be entitled to one or more injunctions requiring specific performance by the
first party of this Section 4.6, and the first party consents to the entry
thereof.
4.7 EMPLOYEES; EMPLOYEE BENEFITS.
(a) EMPLOYMENT. The Purchaser shall offer, or shall cause the
Company to offer, employment on the Closing Date to each employee whose name or
other identification is listed in Schedule 4.7(a)(i) (as may be amended by the
Purchaser and Chiron by mutual consent as of the Closing Date) in the same or a
comparable position and at an initial rate of base salary or wages at least
equal to such employee's rate of base salary or wages in effect on the Closing
Date. It is understood that the other employees of the Business already are
employed by the Company and the Subsidiaries and that their employment shall
continue uninterrupted immediately following the Closing, except for those
employees approved under the Company's long term disability plan for receipt of
benefits for whom Chiron shall retain responsibility. Nothing herein shall be
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construed as limiting the ability of the Purchaser to terminate the employment
following the Closing, subject to the terms of the severance plans and
agreements, retention plans and agreements and employment agreements that the
Purchaser has agreed to honor in Section 4.7(c), of any employee of the Business
or the Company. Persons employed by the Company or any Subsidiary immediately
after the Closing on the Closing Date are referred to as "Continuing Employees".
(b) The Purchaser shall accord equal consideration as between the
management and employees of the Business and the management and employee of any
other business with which the Business may be integrated.
(c) From and after the Closing Date, the Purchaser shall honor in
accordance with their terms all severance plans and agreements and employment
agreements which are disclosed on Part I of Schedule 4.7(c). For a period of 12
months following the Closing Date, severance benefits offered to U.S. Continuing
Employees shall be no less than severance benefits as disclosed on Part I of
Schedule 4.7(c). Chiron shall retain liability for all retention plans (and
payments thereunder) established by Chiron or any Chiron Subsidiary prior to the
Closing, including, but not limited to, the special retention payments disclosed
in Part II of Schedule 4.7(c). For the avoidance of doubt, the items disclosed
on Part I of Schedule 4.7(c) are not considered retention agreements. Chiron
shall assume liability, if any, under Section 280G of the Code with respect to
the individuals disclosed on Part III of Schedule 4.7(c) and the Purchaser shall
retain liability, if any, under Section 280G of the Code with respect to the
individuals disclosed on Part IV of Schedule 4.7(c).
(d) The Purchaser shall, on and after the Closing Date, provide
the U.S. Continuing Employees with employee benefit plans, programs, policies
and arrangements which are (i) no less favorable in the aggregate (other than
stock options, stock purchase plans and stock grants) than the benefit plans,
programs, policies and arrangements provided by Chiron, the Company and the
Subsidiaries of the Company to employees of the Business prior to the Closing
and (ii) in the aggregate substantially comparable to the benefit plans,
programs, policies or arrangements provided by the Purchaser to its other
employees with similar levels
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of responsibility; PROVIDED, HOWEVER, that any employee who is eligible to
receive post-retirement medical or life insurance benefits from Novartis AG will
not be eligible to participate in any such benefit plan offered by the
Purchaser. The Purchaser shall, on and after the Closing Date, provide the non
U.S.-based Continuing Employees of the Business with base salaries no less than
provided by Chiron, the Company and the Subsidiaries of the Company to such non
U.S.-based Continuing Employees of the Business prior to the Closing and with
employee benefit plans, programs, policies and arrangements which are in the
aggregate substantially comparable to the benefit plans, programs, policies or
arrangements provided by the Purchaser to its similarly situated non U.S.-based
employees with similar levels of responsibility; PROVIDED, HOWEVER, that any
employee who is eligible to receive post-retirement medical or life insurance
benefits from Novartis AG will not be eligible to participate in any such
benefit plan offered by the Purchaser. Each such employee benefit plan,
program, policy or arrangement of the Purchaser (other than retiree health and
life insurance plans) shall give full credit for each participant's period of
service with Chiron, the Company, the Subsidiaries and their predecessors prior
to the Closing Date, to the extent such service was credited under the Benefit
Plans, for purposes of determining eligibility, vesting and, with the exception
of the Purchaser's pension plan, the amount of benefits (including subsidies
relating to such benefits), unless such credit would result in a duplication of
benefits. Each employee welfare benefit plan provided to the employees of the
Business from and after the Closing Date shall (i) give full credit for
deductibles and out-of-pocket expenses under the Company's and the Subsidiaries'
Benefit Plans with respect to the current plan year toward any deductibles for
the remainder of the plan year during which the Closing occurs, and (ii) shall
waive any pre-existing condition limitation for any employee covered under a
Chiron, Company or Subsidiary Benefit Plan (which is a group health plan)
immediately prior to the Closing Date.
(e) BONUS/INCENTIVE COMPENSATION; ACCRUED VACATION; NONQUALIFIED
PENSION PLANS. To the extent not reflected on the Closing Balance Sheet, Chiron
shall retain all liabilities and obligations as of the Closing Date with respect
to all (i) bonus and incentive compensation (other than payments under any
retention agreements, which will be handled as provided in Section 4.7(c)),
(ii) accrued but
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unused or unpaid vacation as well as unused personal and sick days except as set
forth in the last two sentences of this Section 4.7(e) and (iii) benefits
(regardless of when payable) under nonqualified Pension Plans, payable to
present and former employees of the Company or any Subsidiary. The Purchaser
agrees to administer the Company's paid time off policy in accordance with its
terms through December 31, 1998. The parties agree that Chiron shall retain no
liabilities as to unused or unpaid vacation, personal or sick time accrued
through the Closing Date attributable to Continuing Employees other than those
set forth on Schedule 4.7(a)(i).
(f) PENSION/SAVINGS PLANS. Chiron shall, effective immediately
following the Closing Date, fully vest the account balance of each U.S. Employee
actively employed on the Closing Date in Chiron's tax-qualified Pension Plans
and Chiron's nonqualified Pension Plan in which any such individual is then
participating. Chiron will be solely responsible for any accrued and earned,
but unpaid, contributions to any Pension Plan for any period prior to the
Closing Date.
4.8 INSURANCE.
(a) Prior to the Closing, Chiron shall take such action as may be
required to ensure that any insurance coverage for any claims that have been
incurred and reported to the applicable insurers prior to the Closing relating
to the Company, the Subsidiaries or the Business will continue with respect to
such claims following the Closing, and Chiron agrees to pay to the Company
insurance proceeds (net of any out-of-pocket unreimbursed costs or expenses of
Chiron incurred in defense of such claim) resulting from such coverage promptly
after receipt thereof. From and after the date hereof, Chiron shall diligently
pursue insurance coverage for any claims that occurred and were reported to
Centaur and/or third party insurers prior to the Closing relating to the
Company, its Subsidiaries or the Business. Following the Closing, Chiron shall
be responsible for the control of all such claims filed with Centaur and the
Company shall be responsible for the control of all such claims filed with third
party insurers, subject to the control exercised by any insurers in accordance
with the applicable insurance policies. Following the Closing, Chiron shall
transfer, immediately, to the Company, all proceeds (net of unreimbursed defense
costs incurred by
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Chiron) which it may actually receive from Centaur and/or third party insurers,
as the case may be, as a result of such claims.
(b) As of the Closing Date, except as set forth in paragraph (a)
of this Section 4.8, the coverage under all insurance policies related to the
Business shall continue in force only for the benefit of Chiron and its
Affiliates and not for the benefit of the Purchaser. The Purchaser agrees to
arrange for its own insurance policies with respect to the Business covering all
periods and agrees not to seek, through any means, to benefit from Chiron's or
its Affiliates' insurance policies which may provide coverage for claims
relating in any way to the Business at, prior to or after the Closing Date,
except as provided in Section 4.8(a); PROVIDED, that in the event that Chiron
has available to it any insurance policies that provide coverage on a "per
occurrence" basis for periods prior to the Closing Date and which may provide
coverage for claims against the Company or any Subsidiary relating to the
Business based on events which occurred prior to the Closing Date, Chiron will
permit the Company or such Subsidiary to pursue such insurance, PROVIDED that
neither Chiron nor any of its Affiliates shall have any obligation whatsoever to
pursue or assist the Company or such Subsidiary in pursuing such insurance; and
PROVIDED FURTHER, that the Company shall indemnify and hold harmless Chiron and
its Affiliates and their respective directors, officers, employees,
representatives and agents against any and all Losses arising out of or
attributable to the pursuit of such insurance by the Company or such Subsidiary.
(c) Chiron shall keep, or cause to be kept, all insurance policies
currently maintained for the Business, or suitable replacements therefor, in
full force and effect through the close of business on the Closing Date.
(d) Chiron and the Other Chiron Affiliates shall cease using the
"Centaur" name and mark related to such name and shall change the name of the
Centaur insurance company as promptly as possible after the Closing but in no
event later than six months after the Closing.
4.9 WARN ACT. The Purchaser shall comply with The Worker
Adjustment Retraining Notification Act and shall indemnify Chiron against any
post-Closing liability thereunder.
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4.10 RESIGNATIONS. On the Closing Date, Chiron shall cause to be
delivered to the Purchaser duly signed resignations, effective immediately after
the Closing, of all directors and officers of the Company and shall take such
other action as is necessary to accomplish the foregoing.
4.11 SUPPLEMENTAL DISCLOSURE. (a) Prior to the Closing, Chiron
shall promptly supplement or amend the Schedules hereto with respect to any
matter existing prior to the Closing which was required to be set forth or
described in such Schedules as of the date hereof but was not so set forth or
described; PROVIDED, HOWEVER, that no supplement or amendment to such Schedules
shall have any effect for the purpose of determining the satisfaction of the
conditions set forth in Section 6.1 or for purposes of determining whether any
Person is entitled to indemnification pursuant to Article VIII.
(b) In the event that, as of February 28, 1999, the Closing has
not occurred and this Agreement has not been terminated, the Company and Chiron
shall deliver to the Purchaser no later than such date, the unaudited
consolidated balance sheet of the Business as of January 3, 1999 and the
unaudited consolidated statement of operations of the Business and the unaudited
consolidated statement of cash flows of the Company for the year ended January
3, 1999.
(c) Chiron shall deliver to the Purchaser (A) within one week
following the date hereof an amended Schedule 2.13(g) to add all research
programs and markers (including, without limitation, the NAD research program
relating to the License and Supply Agreement dated as of May 15, 1995 by and
among Genelabs Technologies, Inc., Genelabs Diagnostics, Inc. (together
"Genelabs"), Chiron and Ortho Diagnostic System Inc., with respect to which
Chiron shall use its commercially reasonable efforts to obtain from Genelabs a
sublicense for the benefit of the Purchaser) that are required to be set forth
therein in order to make the representation and warranty contained in Section
2.13(g) true and correct in all material respects as of the date hereof and (B)
on the Closing Date a further amended Schedule 2.13(g) to add all other research
programs and specific markers that would have been required to be set forth on
Schedule 2.13(g) had they existed on the date hereof.
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4.12 OTHER TRANSACTIONS. From the date of this Agreement to the
Closing, none of Chiron, the Company or any other Affiliate of Chiron shall, nor
shall they permit any of their respective officers, directors or other
representatives to, directly or indirectly, encourage, solicit, initiate or
participate in discussions or negotiations with, or provide any information or
assistance to, any person or group (other than the Purchaser and its
representatives) concerning any merger, sale of securities, sale of substantial
assets or similar transaction involving the Company other than, and subject to
Section 4.2, with respect to the Excluded Businesses or any assets that
primarily relate to or are primarily used in connection with the Excluded
Businesses. Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in the preceding sentence by any officer, director
or other representative of Chiron, the Company or any other Affiliate of Chiron,
whether or not such Person is purporting to act on behalf of Chiron, the
Company, any other Affiliate of Chiron or otherwise, shall be deemed to be a
breach of this Section 4.12 by Chiron. In the event that Chiron, the Company or
any other Affiliate of Chiron receives a proposal relating to any such
transaction, Chiron shall promptly notify the Purchaser of such proposal.
4.13 COOPERATION. Each of the Purchaser and Chiron shall use its
commercially reasonable efforts, and shall cause its respective officers,
employees, agents, auditors and representatives, as applicable, to use their
commercially reasonable efforts after the Closing to effect the orderly
transition of the Business from Chiron to the Purchaser and to minimize any
disruption to the Business or the Excluded Businesses that might result from the
transactions contemplated hereby. After the Closing, upon reasonable written
notice, the Purchaser and Chiron shall furnish or cause to be furnished to each
other and their respective employees, counsel, auditors and representatives, as
applicable, access, during normal business hours, to such information and
assistance relating to the Business as is reasonably necessary for financial
reporting and accounting matters, the preparation and filing of any Tax Returns,
reports or forms or the defense of any tax claim or assessment. No party shall
be required by this Section 4.13 to take any action that would unreasonably
interfere with the conduct of its business or unreasonably disrupt its normal
operations (or, in the case of the Purchaser, the business or operations of the
Company).
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4.14 RECORDS. Promptly after the Closing Date, Chiron shall
deliver or cause to be delivered to the Purchaser all agreements, documents,
files and originals or duplicate copies thereof of all books of account and
related records of the Company, and in the case of books of account and related
records, only to the extent such books and records are separate from the books
and records relating to activities of Chiron other than the Included Businesses
(collectively, "Records"), if any, in the possession of Chiron to the extent not
then in the possession of the Company, except that Chiron may retain all Records
prepared in connection with the sale of the Stock.
4.15 SUBSIDIARY STOCK. At or prior to the Closing, Chiron shall
take any action in compliance with all applicable law at the Purchaser's
direction to cause to be transferred at the Closing any shares of capital stock
of Subsidiaries held by local individuals or local entities, other than as set
forth in Schedule 2.6(b).
4.16 FURTHER ASSURANCES. Each party shall execute and deliver both
before and after the Closing such further certificates, agreements and other
documents and take such other actions as the other party may reasonably request
as may be necessary or appropriate to consummate or implement the transactions
contemplated hereby or to evidence such events or matters. Without limiting the
foregoing, following the Closing, Chiron shall promptly transfer or license to
the Purchaser any asset or property which was required to be transferred or
licensed to the Company in accordance with the Asset Transfer Agreement or the
Cross-License Agreement, respectively, and which was not so transferred or
licensed prior to or at the Closing.
ARTICLE V
TAX MATTERS
5.1 DEFINITIONS. For purposes of this Agreement, "Taxes" shall
mean all federal, state, local and foreign income, property, sales and use,
excise, withholding, franchise, transfer, gross receipt, capital stock,
production, business and occupation, disability, employment, payroll, severance
or similar taxes imposed on the income, properties or operations of the
Purchased Entity or the Seller's Group, together with any penalties,
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additions or interest relating thereto and any interest in respect of such
additions or penalties; "Tax Return" shall mean all reports and returns required
to be filed with respect to Taxes including, without limitation, combined or
consolidated returns for any group of the Seller's Group; and "Net Operating
Losses" or "NOLs" shall mean the deduction allowed as a carryforward for losses
incurred in a prior taxable period.
5.2 TAX-RELATED REPRESENTATIONS AND WARRANTIES.
(a) TAX ALLOCATION AGREEMENTS. Chiron represents and warrants to
the Purchaser that except as set forth in Schedule 5.2(a), the Purchased Entity
is not a party to any written or oral agreement, contract or understanding
relating to any sharing by the Purchased Entity of any Tax liability of any
Person.
(b) TAX RETURNS AND REPORTS. Chiron represents and warrants to
the Purchaser that except as set forth in Schedule 5.2(b), (i) all Tax Returns
for taxable years or periods ending on or before the Closing Date that are
required to be filed by or with respect to the Purchased Entity or the Seller's
Group, including the Purchased Entity, have been or will be timely filed, and
each such Tax Return is, or in the case of such Tax Returns not yet due, will be
complete and correct in all material respects, (ii) all material Taxes owed by
the Purchased Entity or the Seller's Group, whether or not shown to be due on
the Tax Returns referred to in clause (i), have been or will be timely paid in
full, or, in the case of Taxes owed as of the date hereof, are (and until the
Closing Date will continue to be) reflected in the accruals for Taxes payable on
the June 1998 Balance Sheet, other than accruals established to reflect timing
differences and accruals reflected only in notes thereto, (iii) all Tax
deficiencies asserted or assessments made have been settled or paid in full,
(iv) no issues that have been raised by a taxing authority regarding the Tax
liability of the Purchased Entity or the Seller's Group are currently pending,
(v) no waivers of statutes of limitation have been given by or requested with
respect to any Taxes of the Purchased Entity or the Seller's Group, (vi) neither
the Purchased Entity nor any member of the Seller's Group has filed a consent
under Section 341(f) of the Code, (vii) the Purchased Entity has not been a
member of any affiliated group filing a consolidated federal Tax Return (other
than the Seller's Group), (viii) the Purchased
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Entity is not subject to any foreign Tax, (ix) there are no deferred Tax
liabilities attributable to intercompany transactions involving the Purchased
Entity, (x) the Purchased Entity shall not be required to include in its taxable
income in any taxable period ending after the Closing Date any material amounts
attributable to income accrued, but not recognized, in a prior taxable period as
a result of the installment, long-term contract, or cash methods of accounting,
or pursuant to Section 481 (or any comparable state, local or foreign Tax
provisions) and (xi) to the Knowledge of Chiron, no claim has been made by a
taxing authority in a jurisdiction where the Purchased Entity does not file Tax
Returns that the Purchased Entity is, or may be, subject to Tax by such
jurisdiction. Schedule 5.2(b) lists the date or dates through which the
Internal Revenue Service and any other taxing authority have examined the United
States federal income Tax Returns and all other Tax Returns of the Purchased
Entity.
(c) NO FIRPTA WITHHOLDING. Chiron represents and warrants to the
Purchaser that no tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transfer contemplated by this Agreement.
(d) NO PARACHUTE PAYMENTS. Chiron represents and warrants to the
Purchaser that except as set forth in Schedule 5.2(d), as a result of the
Purchaser's purchase of the Stock, neither the Purchased Entity nor the
Purchaser will be obligated to make a payment to an individual that would be a
"parachute payment" to a "disqualified individual" as those terms are defined in
Section 280G of the Code without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future.
5.3 SECTION 338(h)(10). Chiron shall make a joint election with
the Purchaser under Section 338(h)(10) of the Code and any corresponding
elections permitted under state or local law except California, with respect to
the purchase of the Purchased Entity's Stock, and, at the request of the
Purchaser, with respect to such of the Subsidiaries as Purchaser shall
designate. Chiron represents that its sale of the Stock of the Purchased Entity
is eligible for such elections. Chiron and the Purchaser shall not later than
30 days prior to the filing date exchange completed and executed copies of
Internal Revenue Service Form 8023, required schedules thereto, and
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any similar state and foreign forms. The Purchaser shall prepare an allocation
schedule (the "Allocation Schedule") allocating the purchase price and the
liabilities of the Purchased Entity among the assets of the Purchased Entity in
accordance with Section 338 of the Code and the regulations issued thereunder,
and shall submit such Allocation Schedule to Chiron for its review and signature
not later than 30 days prior to the filing date. Chiron hereby agrees to
consent to such allocation so long as the Allocation Schedule has been prepared
in accordance with Section 338 of the Code and the regulations issued
thereunder.
Chiron will notify Purchaser in writing within ten days of delivery of
the Allocation Schedule if it believes the Allocation Schedule has not been
prepared in accordance with Section 338 of the Code and the regulations issued
thereunder. Any disputed items not resolved between the parties within five
days shall be resolved by an Independent Accountant, whose determination shall
be limited to whether a disputed item is allocated in accordance with Section
338 of the Code and the regulations issued thereunder, and shall bind all
parties. Each party shall bear fifty percent (50%) of the cost of such
Independent Accountant, except that Chiron shall bear the full cost if there are
no material adjustments to the Allocation Schedule. Each of Chiron, the
Purchaser and the Purchased Entity will file all Tax Returns and reports in a
manner consistent with the Allocation Schedule and will not take any position
for purposes of any Taxes respecting the allocation of the purchase price and
the liabilities of the Purchased Entity which is inconsistent with the
Allocation Schedule.
5.4 LIABILITY FOR TAXES AND RELATED MATTERS.
(a) LIABILITY OF CHIRON FOR TAXES. Chiron shall be liable and
indemnify Purchaser for all Taxes (i) imposed on the Purchased Entity under
Treasury Regulation Section 1.1502-6 by reason of the inclusion of the
Purchased Entity in a consolidated tax group prior to the Closing Date, or by
reason of any other obligation to contribute to the payment of a Tax determined
on a consolidated, combined or unitary basis with respect to a group of
corporations that includes or has included the Purchased Entity by reason of the
inclusion of the Purchased Entity in such group prior to the Closing Date, (ii)
imposed on the Purchased Entity or for which the Purchased Entity may otherwise
be liable for any
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taxable year or period that ends on or before the Closing Date and, with respect
to any taxable year or period beginning before and ending after the Closing
Date, for the portion of such taxable year or period ending on and including the
Closing Date, as determined pursuant to Section 5.4(d), (iii) imposed in
connection with transactions contemplated in this Agreement or the Ancillary
Agreements, (iv) imposed in connection with the Purchased Entity ceasing to be a
member of the Seller's Group, (v) imposed on Seller's Group (other than the
Purchased Entity) for any taxable year, and (vi) imposed with respect to
inter-company transfers occurring after June 30, 1998 and on or before the
Closing Date, except for Taxes (other than federal, state, local and foreign
income Taxes and other Taxes based on income) to the extent accrued on the Final
Balance Sheet. Except as set forth in Section 5.4(e) and except for refunds of
Taxes to the extent accrued on the Final Balance Sheet, Chiron shall be entitled
to any refund of Taxes of the Purchased Entity received for taxable periods
ending on or before the Closing Date, and for the portion prior to and including
the Closing Date of any taxable periods that include but do not end on the
Closing Date, as determined pursuant to Section 5.4(d).
(b) LIABILITY OF PURCHASER FOR TAXES. The Purchaser shall be
liable for and shall indemnify Chiron for the Taxes of the Purchased Entity for
any taxable year or period that begins after the Closing Date and, with respect
to any taxable year or period beginning before and ending after the Closing
Date, the portion of such taxable year beginning after the Closing Date, as
determined pursuant to Section 5.4(d). The Purchaser shall be entitled to any
refund of Taxes of the Purchased Entity received for such periods.
(c) [reserved]
(d) TAX PERIODS. With respect to any Taxes for any taxable period
that includes but does not end as of the Closing Date, the amount of Taxes
subject to indemnification hereunder attributable to pre-Closing and
post-Closing Tax periods shall be calculated as if such taxable period ended as
of the close of business on the Closing Date, except that property Taxes and
exemptions, allowances or deductions that are calculated on an annual basis
shall be prorated based on the number of days in the annual period elapsed
through the
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Closing Date compared to the number of days in the annual period elapsing after
the Closing Date, respectively.
(e) OFFSET FOR FUTURE REDUCTIONS; INCREASE FOR ADDITIONAL TAX
COSTS. Any liability for Taxes pursuant to Section 5.4(a) or (b) shall be (x)
increased by the amount of any cost incurred by the Indemnified Party in
connection with the adjustment or adjustments that gave rise to the Tax
liability for which the Indemnifying Party is liable hereunder because the
receipt of a payment is treated as taxable income, rather than as an adjustment
to the purchase price (a "Tax Cost"), and (y) reduced by an amount equal to the
present value of (i) any deduction, amortization, exclusion from income, credit
or other allowance (a "Tax Benefit") attributable to an event that gave rise to
a Tax Cost and (ii) any Tax Benefit that accrues to the Indemnified Party after
the Closing Date in connection with the adjustment or adjustments that gave rise
to the Tax liability for which the Indemnifying Party is liable hereunder.
Present value shall be determined by discounting at a rate equal to the
borrowing rate at which the Indemnified Party would borrow money for a term
equal to the period from the time of the indemnification payment to the last
date on which the relevant Tax Benefit is available to be utilized. In
computing the Tax Cost or Tax Benefit, the relevant party will assume that the
Indemnified Party has made full payment of such cost or has made full
utilization of such Tax Benefit at the maximum federal, state, local or foreign,
as the case may be, corporate tax rate in effect at the time such Tax Cost is
incurred by or such Tax Benefit accrues to the relevant party. However, if the
Indemnified Party's Tax Cost actually incurred or Tax Benefit actually realized
is less than the assumed Tax Cost or Tax Benefit calculated above, the
difference between the actual and assumed amounts shall promptly be paid to the
Indemnified Party in the case of a Tax Benefit, and to the Indemnifying Party in
the case of a Tax Cost. Chiron shall promptly notify Purchaser, and Purchaser
shall promptly notify Chiron, when the relevant party becomes aware that any Tax
Cost is incurred or Tax Benefit is accrued in accordance with this Section
5.4(e).
5.5 NET OPERATING LOSSES AND CREDITS. (a) The indemnity in
Section 5.4 shall not apply to, and Chiron shall not be liable for, any increase
in Tax resulting from any adjustment to any Net Operating Loss of the Purchased
Entity available to offset income of the Purchased Entity or
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the Purchaser in a Tax period or portion thereof beginning on or after the
Closing Date. Additionally, Chiron makes no representation with respect to the
ability of the Company or its Subsidiaries to use after the Closing Date any Net
Operating Loss available immediately prior to the Closing Date, and Chiron shall
not have any indemnity obligation hereunder to the extent that the Purchased
Entity or the Purchaser are unable to use after the Closing Date NOLs available
immediately prior to the Closing Date.
(b) Chiron represents that the Purchased Entity is expected to
have available California Tax credits of $970,000 as of the Closing Date. If
the Purchased Entity has available less than $970,000 of California Tax credits
as of the Closing Date, Chiron shall pay the Purchaser the difference between
(x) $970,000 and (y) the amount of California Tax credits actually available as
of the Closing Date, no later than the due date for the Purchased Entity's 1998
California Tax Return. If the Purchased Entity has available more than $970,000
of California Tax credits as of the Closing Date, the Purchaser shall pay Chiron
the difference between (x) the amount of California Tax credits actually
available as of the Closing Date and (y) $970,000, no later than the due date
for the Purchased Entity's California Tax Return for the year or years in which
the Purchased Entity actually uses more than $970,000 of the California Tax
credits available as of the Closing Date. Chiron also hereby agrees to
reimburse the Purchaser for (i) all California Tax credits actually available as
of the Closing Date that are subsequently disallowed, and (ii) any portion of
the California Tax credits that the Purchaser or the Purchased Entity is unable
to use prior to the expiration of such credits, up to the lesser of (x) $970,000
or (y) the amount of California Tax credits actually available as of the Closing
Date. Chiron shall promptly notify Purchaser, and Purchaser shall promptly
notify Chiron when any reimbursement or payment is required to be made under
this Section 5.5(b).
5.6 ADJUSTMENT TO PURCHASE PRICE. Any payment by the Purchaser or
Chiron under this Article V will be treated as an adjustment to the purchase
price, except to the extent different treatment is required by a taxing
authority.
5.7 TAX RETURNS. Chiron shall timely file or cause to be timely
filed all Tax Returns that are required
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to be filed by or with respect to the Purchased Entity for taxable years or
periods ending on or before the Closing Date and shall pay any Taxes due in
respect of such Tax Returns. All such Tax Returns shall be prepared in a manner
that accurately reflects income, and on a basis consistent with the past
practices of the Purchased Entity. The Purchaser shall timely file or cause to
be timely filed all Tax Returns required to be filed by or with respect to the
Purchased Entity for taxable years or periods ending after the Closing Date and
shall remit any Taxes due in respect of such Tax Returns. The party filing an
above-described Tax Return shall provide the non-filing party with a copy of any
Tax Return for a taxable period that precedes the Closing Date, or includes the
Closing Date and also includes Taxes for which the non-filing party may be
liable, at least 30 days prior to the due date for filing the Tax Return. The
non-filing party shall have the right to object to such Tax Return only on the
grounds that such Tax Return is inconsistent with the applicable law. If the
non-filing party objects to a Tax Return, Chiron and the Purchaser agree to
submit the dispute to an Independent Accountant. Each party shall bear fifty
percent (50%) of the cost of such Independent Accountant, except that the
non-filing party shall bear the full cost if there are no material adjustments
to such Tax Return. Chiron shall pay the Purchaser the Taxes for which Chiron
is liable pursuant to Section 5.4(a) with respect to Tax Returns to be filed by
the Purchaser within 10 days prior to the due date for the filing of such Tax
Returns, if Chiron does not object to such Tax Return, or within 10 days after
the decision of the Independent Accountant, if Chiron properly objects to such
Tax Return.
5.8 TRANSFER TAXES. Notwithstanding anything to the contrary in
this Article V or Section 1.1, the Purchaser and Chiron shall each be liable for
fifty percent (50%) of all transfer, sales, use, excise and similar taxes
arising in connection with the transactions under this Agreement.
5.9 INFORMATION TO BE PROVIDED BY THE PURCHASER. The Purchaser
shall promptly cause the Purchased Entity to prepare and provide to Chiron as
soon as practicable a package of tax information materials including schedules,
work papers and the computation of separate taxable income or other relevant
measure of taxation of the Purchased Entity, for the portion of the taxable
periods ending on the Closing Date.
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5.10 TAX PROCEEDINGS.
(a) RIGHT TO CONTROL PROCEEDINGS. Chiron shall have the
responsibility for, and the right to control, at Chiron's expense, the audit
(and disposition thereof) of any Tax Return relating to periods ending on or
prior to the Closing Date, and to participate in the audit of any Tax Return
relating to the periods including, but ending after the Closing Date if such
audit or disposition thereof could reasonably be expected to give rise to a
claim for indemnification hereunder (any such audit or disposition, a "Tax
Proceeding"). Purchaser and the Purchased Entity shall have the right to
participate in Tax Proceedings relating to periods ending on or prior to the
Closing Date at the Purchaser's expense.
(b) NOTICE; REPORTS. Chiron's right to control a Tax Proceeding
under Section 5.10(a) shall commence upon the receipt by the Purchaser or any of
its Affiliates (including, after the Closing Date, the Purchased Entity) of a
proposed adjustment to Tax for the period under audit or examination
communicated in writing. The Purchaser shall promptly notify Chiron in writing
upon their learning of the pendency of a Tax Proceeding and shall fully
cooperate with Chiron in the conduct of such Tax Proceeding. At Chiron's
request, which shall not be made more frequently than once per year, the
Purchaser shall provide Chiron with a list of any Tax audits, examinations or
other proceeding that has resulted or could result in a Tax Proceeding in
progress, the nature of the Tax and Tax period involved and the status of the
proceeding, including the amount of the proposed adjustment, if known. The
failure on the part of the Purchaser to promptly notify Chiron of the pendency
of a Tax Proceeding shall not in any way affect Chiron's indemnity obligations
hereunder, except to the extent that Chiron is actually prejudiced, including by
reason of incurring material Tax penalties, as a result of such delay. Without
the prior written consent of Chiron (which consent shall not be unreasonably
withheld), neither the Purchaser nor any of its Affiliates shall settle or
compromise any claim for Taxes with respect to a taxable period that ends on or
before the Closing Date that could reasonably be expected to result in Chiron's
being required to make an indemnity payment pursuant to Section 5.4(a). The
Purchaser shall, and shall cause the Purchased Entity to, cooperate with Chiron
including providing reasonable access to records, returns and supporting
information, in connection with any
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Tax Proceeding or matter as to which the Purchaser may seek indemnity or other
relief from Chiron under this Article V.
5.11 CHANGES IN ELECTIONS, AMENDED RETURNS, ETC. Chiron will not,
and will not permit any of its Affiliates to, without the consent of the
Purchaser (which consent shall not be unreasonably withheld), make or change any
elections with respect to Taxes that are inconsistent with prior elections
reflected in prior Tax Returns or the Financial Statements, amend any Tax Return
that includes the Purchased Entity for any period prior to or including the
Closing Date, or change an annual Tax accounting period, adopt or change any Tax
accounting method, enter into any closing agreement, settle any Tax claim or
assessment, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the statute of limitations period applicable to any Tax
claim or assessment, or take any other action or omit to take any action, IF any
such election, adoption, change, amendment, agreement, settlement, surrender,
consent or other action or omission would have the effect of increasing the Tax
liability or reducing any net operating or capital loss, or any Tax credit or
Tax attribute of the Purchased Entities which could reduce Taxes (including,
without limitation, deductions and credits related to alternative minimum
Taxes). Purchaser will not permit the Purchased Entity to amend any Tax Return
with respect to any Tax period ending on or prior to the Closing Date in a
manner that would increase the Tax owed with respect to such Tax Return without
the consent of Chiron (which consent shall not be unreasonably withheld).
Chiron shall provide to the Purchaser a copy of any amended Tax Return prepared
thirty days prior to the projected filing date of such return. Purchaser shall
provide to Chiron a copy of any amended return filed for a tax period including
or ending on or before the Closing Date.
5.12 ASSISTANCE AND COOPERATION. After the Closing Date, each of
Chiron and the Purchaser shall (i) assist (and cause their respective affiliates
to assist) the other party in preparing any Tax Returns or reports which such
other party is responsible for preparing and filing in accordance with this
Article V, (ii) cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of the Purchased Entity, (iii)
make available to the other and to any taxing authority as reasonably requested
all information, records, and documents relating to Taxes of the
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Purchased Entity, (iv) provide timely notice to the other in writing of any Tax
audits or assessments of the Purchased Entity for taxable periods for which the
other may have a liability under this Article V and (v) furnish the other with
copies of all material correspondence received from any taxing authority in
connection with any Tax audit or information request with respect to any such
taxable period.
5.13 TAX CERTIFICATES. Chiron shall deliver to Purchaser at the
Closing a certificate in form and substance satisfactory to Purchaser duly
executed and acknowledged, certifying all facts necessary to exempt the
transactions contemplated hereby from withholding pursuant to the provisions of
the Foreign Investment in Real Property Tax Act.
5.14 TAX SHARING AGREEMENTS. All Tax sharing agreements,
arrangements and practices between Chiron and any affiliates (other than the
Purchased Entity), on the one hand, and the Purchased Entity, on the other hand,
shall be terminated on or before the Closing. After the Closing no party shall
have any rights or obligations under any such Tax sharing agreement, arrangement
or practice for any past, present or future taxable periods.
5.15 SURVIVAL, ETC. Notwithstanding anything to the contrary
contained in this Agreement, the representations and warranties and the
indemnification obligations set forth in this Article V shall survive the
Closing and shall remain in effect until the expiration of the applicable
statute of limitations. Any matter as to which a claim has been asserted by
notice to the other party that is pending or unresolved at the end of any
applicable limitation period shall continue to be covered by this Article V
notwithstanding any applicable statute of limitations (which the parties hereby
waive) until such matter is finally terminated or otherwise resolved by the
parties or by a court of competent jurisdiction and any amounts payable
hereunder are finally determined and paid. This Article V shall not be deemed
to preclude or otherwise limit in any way the exercise of any other rights or
pursuit of other remedies for the breach of this Agreement or with respect to
any misrepresentation. Chiron agrees to notify the Purchaser of any
liabilities, claims or misrepresentations, breaches or other matters covered by
this Article V immediately upon discovery or receipt of notice thereof
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(other than from the Purchaser), whether before or after the Closing.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The
obligations of the Purchaser to purchase and pay for the Stock and consummate
the other transactions contemplated by this Agreement and the Ancillary
Agreements are subject to the satisfaction at or prior to the Closing of the
conditions set forth in this Section 6.1, any one or more of which may be
waived, in whole or in part, by the Purchaser:
(a) COMPETITION LAW APPROVALS. The Competition Law Approvals
shall have been satisfied.
(b) ORDERS. (i) No statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary or permanent injunction or
other order enacted, entered, promulgated, enforced or issued by any
Governmental Entity or other legal restraint or prohibition preventing or
delaying the consummation of the sale of the Stock or the transactions
contemplated by this Agreement and the Ancillary Agreements shall be in effect.
(ii) There shall not be pending or threatened by any Governmental
Entity any suit, action or proceeding (or by any other Person (other than any
stockholder of the Purchaser or any of its Affiliates) any suit, action or
proceeding which has a reasonable likelihood of success) (A) challenging or
seeking to restrain, delay or prohibit the purchase and sale of the Stock or any
of the other transactions contemplated by this Agreement or the Ancillary
Agreements or seeking to obtain from the Purchaser or any of its subsidiaries in
connection with the purchase and sale of the Stock any damages, (B) seeking to
prohibit or limit the ownership or operation by the Purchaser, its subsidiaries
or the Company of any portion or portions of the Business which individually or
in the aggregate are material to any of the Included Business, or to compel the
Purchaser, its subsidiaries or the Company to dispose of or hold separate any
portion or portions of the Business or of the business of the Purchaser or its
subsidiaries which individually or
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in the aggregate are material to any of the Included Businesses or the business
of the Purchaser, as the case may be, in each case as a result of the purchase
and the sale of the Stock or any of the other transactions contemplated by this
Agreement or the Ancillary Agreements, (C) seeking to impose limitations on the
ability of the Purchaser to acquire or hold, or exercise full rights or
ownership of, the Stock, including the right to vote the Stock on all matters
properly presented to the stockholders of the Company, or (D) seeking to
prohibit or materially limit the Purchaser or any of its subsidiaries from
effectively controlling in any respect the Business.
(c) ACCURACY OF REPRESENTATIONS. The representations and
warranties of Chiron and the Company made in this Agreement shall be true and
correct at and as of the Closing Date as if made at and as of the Closing
(ignoring for this purpose any materiality standard contained in such
representations or warranties), except where the failure of the representations
and warranties to be true and correct (as so modified) would not reasonably be
expected, individually or in the aggregate, to result in Losses (not including
any consequential damages including loss of profits or lost opportunities) in
excess of $60 million and except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct on and as of such
earlier date), and the Purchaser shall have received a certificate, dated the
Closing Date, of the Chief Financial Officer or the Chief Executive Officer of
Chiron and of the Company to that effect.
(d) PERFORMANCE OF COVENANTS. Chiron and the Company shall have
performed and complied in all material respects with all covenants and
agreements contained in this Agreement that are required to be performed or
complied with by each of them at or prior to the Closing, and the Purchaser
shall have received a certificate, dated the Closing Date, of the Chief
Financial Officer or the Chief Executive Officer of Chiron and of the Company to
that effect.
(e) RESIGNATION OF DIRECTORS. The directors of the Company and
the Subsidiaries shall have submitted their resignations in writing, effective
as of the Closing, to the Company and the Subsidiaries, as applicable.
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(f) ASSET TRANSFER AGREEMENT. Each of Chiron and the Company
shall have executed and delivered to each other the Asset Transfer Agreement,
and the transactions contemplated thereby shall have been consummated.
(g) CROSS-LICENSE AGREEMENT. Chiron shall have executed and
delivered to the Company the Cross-License Agreement.
(h) NON-COMPETITION AGREEMENT. Chiron shall have executed and
delivered to the Purchaser the Non-Competition Agreement.
(i) TRADEMARK LICENSE AGREEMENT. Chiron shall have executed and
delivered to the Company the Trademark License Agreement.
(j) INTERCOMPANY ACCOUNTS; INTERCOMPANY DEBT. (i) All advances
and other extensions of credit made between the Company or a Subsidiary, on the
one hand, and Chiron or an Other Chiron Affiliate, on the other hand, shall have
been eliminated and (ii) all Intercompany Debt and related guarantees shall have
been discharged or transferred in its entirety to Chiron or an Other Chiron
Affiliate.
(k) LEGAL OPINION. The Purchaser shall have received an opinion
dated the Closing Date of Sullivan & Cromwell, counsel to Chiron, and inside
counsel in form and substance reasonably satisfactory to the Purchaser.
(l) GEN-PROBE AGREEMENT. The Distribution and License Agreement,
dated June 11, 1998, between Chiron and Gen-Probe Incorporated shall have been
amended with respect to the monetary obligations thereof in the manner set forth
in Schedule 6.1(l) hereto, and otherwise with respect to the allocation of the
other rights and obligations thereunder to the Excluded Businesses and to the
Business in form and substance reasonably satisfactory to the Purchaser.
(m) CONSENT UNDER AGREEMENTS. Each of Sanwa Business, Sanwa GmbH
and Heller shall have delivered a signed written consent to the sale of the
Company by Chiron contemplated hereby and its waiver of any "Termination Event"
with respect to the Sanwa Business Agreement, the Sanwa GmbH Agreement and the
Heller Agreement, respectively, in form and substance reasonably satisfactory to
the Purchaser.
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6.2 CONDITIONS TO THE OBLIGATIONS OF CHIRON. The obligations of
Chiron to consummate the transactions contemplated by this Agreement and the
Ancillary Agreements are subject to the satisfaction at or prior to the Closing
of the conditions set forth in this Section 6.2, any one or more of which may be
waived, in whole or in part, by Chiron.
(a) COMPETITION LAW APPROVALS. The Competition Law Approvals shall
have been satisfied.
(b) ORDERS. (i) No statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary or permanent injunction or
other order enacted, entered, promulgated, enforced or issued by any
Governmental Entity or other legal restraint or prohibition preventing or
delaying the consummation of the sale of the Stock or the transactions
contemplated by this Agreement and the Ancillary Agreements shall be in effect.
(ii) There shall not be pending or threatened by any Governmental
Entity any suit, action or proceeding (or by any other Person (other than any
stockholder of Chiron or any of its Affiliates) any suit, action or proceeding
which has a reasonable likelihood of success) (A) challenging or seeking to
restrain, delay or prohibit the purchase and sale of the Stock or any of the
other transactions contemplated by this Agreement or the Ancillary Agreements or
seeking to obtain from the Purchaser or any of its subsidiaries in connection
with the purchase and sale of the Stock any damages, (B) seeking to prohibit or
limit the ownership or operation by the Purchaser, its subsidiaries or the
Company of any portion or portions of the Business which individually or in the
aggregate are material to any of the Included Businesses, or to compel the
Purchaser, its subsidiaries or the Company to dispose of or hold separate any
portion or portions of the Business or of the business of the Purchaser or its
subsidiaries which individually or in the aggregate are material to any of the
Included Business or the business of the Purchaser, as the case may be, in each
case as a result of the purchase and the sale of the Stock or any of the other
transactions contemplated by this Agreement or the Ancillary Agreements,
(C) seeking to impose limitations on the ability of the Purchaser to acquire or
hold, or exercise full rights or ownership of, the Stock, including the right to
vote the Stock on all matters properly presented to the stockholders of the
Company, or (D) seeking to prohibit or materially limit the
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Purchaser or any of its subsidiaries from effectively controlling in any respect
any portion or portions of the Business which individually or in the aggregate
are material to any of the Included Businesses.
(c) ACCURACY OF REPRESENTATIONS. The representations and
warranties of the Purchaser in this Agreement shall be true and correct in all
material respects at and as of the Closing Date as if made at and as of the
Closing, and Chiron shall have received a certificate, dated the Closing Date,
of the Chief Executive Officer or the Chief Financial Officer of the Purchaser
to that effect.
(d) PERFORMANCE OF COVENANTS. The Purchaser shall have performed
and complied in all material respects with all covenants and agreements
contained in this Agreement that are required to be performed or complied with
by it at or prior to the Closing, and Chiron shall have received a certificate,
dated the Closing Date, of the Chief Executive Officer or the Chief Financial
Officer of the Purchaser to that effect.
(e) ASSET TRANSFER AGREEMENT. The Company shall have executed and
delivered to Chiron the Asset Transfer Agreement, and the transactions
contemplated thereby shall have been consummated.
(f) CROSS-LICENSE AGREEMENT. The Company shall have executed and
delivered to Chiron the Cross-License Agreement.
(g) NON-COMPETITION AGREEMENT. The Purchaser shall have executed
and delivered to Chiron the Non-Competition Agreement.
(h) TRADEMARK LICENSE AGREEMENT. The Company shall have executed
and delivered to Chiron the Trademark License Agreement.
(i) ASSUMPTION OF AGREEMENTS. The Purchaser shall have assumed
the obligations of Chiron and Novartis AG under the guarantees related to the
Sanwa Agreements and the Heller Agreement.
(j) LEGAL OPINION. Chiron shall have received an opinion dated
the Closing Date of Cravath, Swaine &
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Moore, counsel to the Purchaser, in form and substance reasonably satisfactory
to Chiron.
ARTICLE VII
TERMINATION
7.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at
any time prior to Closing:
(a) MUTUAL AGREEMENT. by the mutual written agreement of Chiron
and the Purchaser;
(b) EXPIRATION. by Chiron or by the Purchaser if the Closing
shall not have occurred on or before March 31, 1999, unless the failure to
consummate the Closing by such date shall be due to the failure of the party
seeking to terminate this Agreement to have fulfilled any of its obligations
under this Agreement;
(c) CONTRAVENTION OF LAW. by Chiron or by the Purchaser if
consummation of the transactions contemplated hereby or by any of the Ancillary
Agreements would violate any nonappealable final order, decree or judgment of
any court or Governmental Entity having competent jurisdiction;
(d) BREACH. by Chiron or the Purchaser if there has been a breach
of any representation, warranty, covenant or agreement that would give rise to
the failure of the conditions to the obligations of Chiron set forth in
Section 6.2(c) or Section 6.2(d), with respect to Chiron's right to terminate
this Agreement, or the conditions to the obligations of the Purchaser set forth
in Section 6.1(c) or Section 6.1(d), with respect to the Purchaser's right to
terminate this Agreement, which breach cannot be or has not been cured within 30
days after the giving of written notice to the breaching party of such breach.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 7.1, such termination shall be without liability of any
party (or any stockholder, director, officer, employee or agent of any party) to
any other party to this Agreement. Immediately following any termination of
this Agreement, Chiron shall pay to the Purchaser $13.75 million; PROVIDED,
HOWEVER, that such payment shall not be construed in any manner to restrict or
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limit Chiron's rights and remedies hereunder or under law against the Purchaser.
Nothing herein, including the payment contemplated by the prior sentence, shall
relieve any party from liability for any breach prior to such termination.
Section 4.6 shall survive any termination hereof.
ARTICLE VIII
INDEMNIFICATION
8.1 CHIRON'S INDEMNIFICATION OBLIGATIONS. (a) Except as provided
in Section 8.6, the representations and warranties of Chiron included or
provided for herein shall survive Closing until the later of (i) the close of
business on the date on which an audit of the Company for the fiscal year ended
December 31, 1999 is completed and (ii) the first anniversary of the Closing
Date, and the covenants and agreements of Chiron required to be performed or
complied with at or prior to the Closing shall terminate on the Closing Date;
PROVIDED, HOWEVER, that any covenant or agreement that by its express terms
cannot be performed within such time period shall survive Closing until the date
or time specified therein or until the actions contemplated thereby shall have
been consummated; PROVIDED, FURTHER that (i) any representation or warranty
contained in Section 2.21 shall survive Closing until three years after the
Closing Date and (ii) any representation and warranty contained in Section 2.6
shall survive the Closing without limitation.
(b) (i) Subject to the expiration of the period specified in
Section 8.1(a), if applicable, Chiron shall, subject to the limitations set
forth in paragraph (b)(ii) of this Section 8.1, indemnify the Purchaser and each
of its Affiliates (including the Company and the Subsidiaries after the
Closing), and each of their respective officers, directors, employees,
stockholders, representatives and agents against and hold them harmless from all
Losses sustained or incurred arising out of, relating to or in respect of
(A) any breach of any of Chiron's representations or warranties which survive
the Closing as set forth in this Agreement, (B) any breach of any of Chiron's
covenants and obligations under this Agreement, (C) any Retained Liability or
Excluded Business, (D) [CONFIDENTIAL
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TREATMENT REQUESTED], (E) [CONFIDENTIAL TREATMENT REQUESTED] or
(F) [CONFIDENTIAL TREATMENT REQUESTED]; PROVIDED, HOWEVER, that once it has
been determined that there has been a breach of a representation or warranty,
the amount of Losses as provided for herein with respect to such breach is to
be determined on the basis of such breach of such representation or warranty
without regard to any materiality standard contained therein.
(ii) (A) No claim for indemnification with respect to any breach
of any representations or warranties set forth in this Agreement shall be
brought under this Section 8.1 against Chiron unless and until the aggregate
amount of all claims for indemnification under this Article VIII against Chiron
exceeds $12,500,000 (the "Threshold Amount"), and then for the full amount of
all such claims; (B) the indemnification obligations under this Article VIII of
Chiron with respect to any breach of any representations or warranties set forth
in this Agreement shall be limited to a maximum aggregate liability of
$500,000,000 (the "Cap"); and (C) no indemnity with respect to any breach of any
representations or warranties set forth in this Agreement shall be recoverable
from Chiron with respect to any individual claim unless the amount thereof
equals at least $50,000 (the "De minimis Amount"), and no such claims shall
count toward the Threshold Amount. Notwithstanding the foregoing, (i) none of
the Threshold Amount, the De minimis Amount or the Cap shall be applicable to
the indemnification obligations set forth in subclauses (C), (D), (E) and (F) of
Section 8.1(b)(i) or any breach of any representations or warranties set forth
in Sections 2.1 and 2.6(a).
8.2 THE PURCHASER'S INDEMNIFICATION OBLIGATIONS. (a) Except as
provided in Section 8.6, the representations and warranties of the Purchaser
included or provided for herein shall survive Closing until the later of (i) the
close of business on the date on which an audit of the Company for fiscal year
ended December 31, 1999 is completed and (ii) the first anniversary of the
Closing Date, and the
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covenants and agreements of the Purchaser required to be performed or complied
with at or prior to the Closing shall terminate on the Closing Date; PROVIDED,
HOWEVER, that any covenant or agreement that by its express terms cannot be
performed within such time period shall survive Closing until the date or time
specified therein or until the actions contemplated thereby shall have been
consummated.
(b) Subject to the expiration of the period specified in
Section 8.2(a), if applicable, the Purchaser shall indemnify Chiron and each of
its Affiliates (including the Company and the Subsidiaries prior to the Closing)
and their respective officers, directors, employees and agents against and in
respect of all Losses sustained or incurred arising out of, relating to or in
respect of any breach of any of the Purchaser's representations and warranties
set forth in this Agreement or any breach of the Purchaser's covenants and
obligations under this Agreement; PROVIDED, HOWEVER, that once it has been
determined that there has been a breach of a representation or warranty, the
amount of Losses as provided for herein with respect to such breach is to be
determined on the basis of such breach of such representation or warranty
without regard to any materiality standard contained therein.
8.3 METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification by any party entitled to indemnification hereunder (an
"Indemnified Party") shall be asserted and resolved as set forth in this
Section 8.3. Any Indemnified Party seeking indemnity pursuant to Section 8.1 or
Section 8.2 shall notify the party from whom indemnification is sought (the
"Indemnifying Party") promptly, but in no event later than the 20th day after
receipt by the Indemnified Party of a claim or demand in the case of a third
party claim (a "Third Party Claim"), of such claim or demand and the amount or
the estimated amount thereof to the extent then feasible, and in the event that
an Indemnified Party shall assert a claim for indemnity under this Article VIII
not including a Third Party Claim, the Indemnified Party shall promptly, but in
no event later than the 20th day after the discovery of the facts or
circumstances giving rise thereto, notify the Indemnifying Party of any claim,
suit, proceeding or liability to which such indemnification may apply; PROVIDED,
HOWEVER, that any failure to provide such notice shall not constitute a waiver
of the Indemnifying Party's indemnity obligations hereunder except to the extent
the Indemnifying Party is actually materially
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prejudiced thereby. The Indemnifying Party shall have 30 days from the personal
delivery or mailing of such notice (the "Notice Period") to notify the
Indemnified Party (i) whether or not the Indemnifying Party disputes the
liability of the Indemnifying Party to the Indemnified Party hereunder with
respect to such claim or demand and (ii) whether or not it desires to defend the
Indemnified Party against such claim or demand. With respect to a Third Party
Claim, in the event that the Indemnifying Party notifies the Indemnified Party
within the Notice Period that it desires to defend the Indemnified Party against
such claim or demand, the Indemnifying Party shall have the right to defend the
Indemnified Party at the Indemnifying Party's sole cost and expense and with
counsel (plus local counsel if appropriate) reasonably satisfactory to the
Indemnified Party. If the Indemnifying Party's right to assume the defense is
exercised, the Indemnifying Party shall be deemed to have waived all rights to
contest its liability to the Indemnified Party in respect of such Third Party
Claim. The Indemnifying Party shall not settle or compromise or consent to the
entry of any judgment with respect to any Third Party Claim that it elects to
defend without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld. If the right to assume and control the
defense is exercised, the Indemnified Party shall have the right to participate
in, but not control, such defense at its own expense and the Indemnifying
Party's indemnity obligations shall be deemed not to include attorneys' fees and
litigation expenses incurred in such participation by the Indemnified Party
after the assumption of the defense by the Indemnifying Party in accordance with
the terms hereof; PROVIDED, HOWEVER, that the Indemnified Party shall be
entitled to employ one firm or separate counsel (plus local counsel if
appropriate) to represent the Indemnified Party if, in the written opinion of
counsel to the Indemnified Party, a conflict of interest between the Indemnified
Party and the Indemnifying Party exists in respect of such claim or, in any
event, for claims seeking equitable relief from the Indemnified Party and in
each such event, the fees, costs and expenses of such firm or separate counsel
(plus local counsel if appropriate) shall be paid in full by the Indemnifying
Party. If the Indemnifying Party has not elected to assume the defense of a
Third Party Claim within the Notice Period, the Indemnified Party may defend and
settle the claim for the account and cost of the Indemnifying Party; PROVIDED,
that the Indemnified Party will not settle the Third Party Claim without the
prior
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written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld. The Indemnifying Party will promptly pay, or reimburse
the Indemnified Party for payment of, all costs and expenses (including
reasonable fees and expenses of counsel) incurred in the defense thereof. The
Indemnified Party shall cooperate with the Indemnifying Party and, subject to
obtaining proper assurances of confidentiality and privilege, shall make
available to the Indemnifying Party all pertinent information under the control
of the Indemnified Party.
8.4 INSURANCE PROCEEDS; INTEREST. In determining the amount of
any Loss for which any party is entitled to indemnification under this
Article VIII, the gross amount thereof (a) will be reduced by any insurance
proceeds realized by such party from third party insurers and (b) will be
increased by an Indemnified Party's Tax Cost and reduced by any Indemnified
Party's Tax Benefits to the extent such Tax Cost or Tax Benefit results from the
incurrence of such Loss. The amount of any such Tax Cost or Tax Benefit shall
be determined as set forth in Section 5.4(e).
8.5 EXCLUSIVE REMEDY; SURVIVAL
(a) The indemnity provided herein shall be the sole and exclusive
remedy of the parties hereto, their Affiliates, successors and assigns with
respect to any and all claims for Losses sustained or incurred arising out of
this Agreement and the transactions contemplated hereby. Notwithstanding
anything to the contrary contained herein, no Indemnifying Party shall be
responsible for indemnifying any Indemnified Party for any consequential damages
incurred by such Indemnified Party, including loss of profits of the Indemnified
Party.
(b) Except with respect to the indemnification obligations set
forth in subclauses (C), (D), (E) and (F) of Section 8.1(b)(i), notwithstanding
anything in this Agreement to the contrary, all indemnification obligations
under this Article VIII shall terminate and expire on, and no action or
proceedings seeking damages or other relief for breach of any part thereof shall
be commenced after, the expiration of the applicable period set forth in Section
8.1(a) or Section 8.2(a), as the case may be; PROVIDED, HOWEVER, any claim that
has been asserted by notice to the other party that is pending or unresolved at
the end of the
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applicable period set forth in Section 8.1(a) or Section 8.2(a), as the case may
be, shall continue to be covered by this Article VIII notwithstanding any
applicable expiration of the indemnification obligations set forth in Article
VIII until such matter is finally terminated or otherwise resolved by the
parties or by a final and nonappealable judgment of a court of competent
jurisdiction and any amounts payable hereunder are finally determined and paid.
8.6 TAX LOSSES. Losses related to Tax matters are expressly
excluded from this Article VIII and instead shall be governed by the provisions
of Article V.
ARTICLE IX
CERTAIN DEFINITIONS
9.1 CERTAIN DEFINITIONS. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, means (a) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise, or (b) the ownership
of more than 25% of the voting securities of that Person. Notwithstanding
anything to the contrary contained herein, "Affiliate" shall not include, in the
case of Chiron, Novartis AG or any Affiliate of Novartis AG (other than Chiron
or any subsidiary of Chiron).
"Agreement" means this Agreement by and among Chiron, the Company and
the Purchaser, as amended or supplemented together with all Exhibits and
Schedules attached or incorporated by reference.
"Allocation Schedule" has the meaning set forth in Section 5.3.
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"Ancillary Agreements" shall mean the Asset Transfer Agreement, the
Cross-License Agreement, the Non-Competition Agreement and the Trademark License
Agreement.
"Asset Transfer Agreement" shall mean the agreement to be entered into
between Chiron and the Company, substantially in the form of Exhibit A hereto.
"Balance Sheets" has the meaning set forth in Section 2.7.
"Benefit Plans" has the meaning set forth in Section 2.17(a).
"Blood Screening" shall mean (a) the screening of blood, plasma or
blood components intended for transfusion or for use in blood products (e.g.,
immunoglobulins), and (b) the screening of any biological materials intended for
transfusion or transplantation, in each case from any donor, including
autologous donors.
"Blood Screening Business" shall mean the business of Chiron and the
Chiron Subsidiaries of researching, developing, manufacturing, using, marketing,
distributing or selling products or services, including instrumentation systems,
reagents and assay kits and testing services, for Blood Screening, including
without limitation, (a) the use of nucleic acid hybridization technology,
including the Company's proprietary branched DNA signal amplification technology
for blood screening, and (b) the blood screening business that may be conducted
by Chiron pursuant to the Gen-Probe Agreement.
"Business" shall mean the business of the Company and the Subsidiaries
after giving effect to the Asset Transfer Agreement, including the Included
Businesses but excluding the Excluded Businesses.
"Business Days" shall mean any day other than a Saturday, a Sunday or
a day on which banks in New York or California are authorized or obligated by
law or executive order to close.
"Cap" has the meaning set forth in Section 8.1(b).
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"Cash" shall mean the cash and cash equivalents of the Business
calculated in accordance with GAAP and on a basis consistent with the
preparation of the June 1998 Balance Sheet.
"Centaur" shall mean Chiron's wholly-owned captive insurance
subsidiary.
"Centaur System" shall mean the ACS-Registered Trademark-Centaur-TM-
immunodiagnostics assay instrument system.
"Certain Governmental Approvals" has the meaning set forth in Section
2.3.
"Chiron" has the meaning set forth in the first paragraph of this
Agreement.
"Chiron License Approvals" has the meaning set forth in Section
2.13(i).
"Chiron Licenses" shall mean any agreement to which Chiron or any
Other Chiron Subsidiary is a party under which patents or patent applications
owned by a third party have been licensed to Chiron or such Other Chiron
Subsidiary for use in connection with the Business.
"Chiron/Ortho Agreement" shall mean the Agreement, dated as of August
17, 1989, between Chiron and Ortho Diagnostics Systems Inc.
"Chiron/Ortho Joint Business" shall mean the business currently
conducted by Chiron in a joint business with Ortho Diagnostics Systems Inc.
pursuant to the Chiron/Ortho Agreement.
"Chiron Patents" has the meaning set forth in Section 2.13(b).
"Chiron Subsidiaries" shall mean the Company, the Subsidiaries and all
Other Chiron Subsidiaries.
"Clinical Chemistry Business" shall mean the business of Chiron and
the Chiron Subsidiaries of researching, developing, manufacturing, using,
marketing, distributing or selling products or services, including
instrumentation systems, reagents and assay kits and testing services, for In
Vitro Diagnostics based on enzymatic and
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colorimetric technology to assay for such analytes as glucose, BUN, and
creatinine, including, without limitation, the Express-Registered Trademark-Plus
instrument and all assays for use on such instrument.
"Closing" has the meaning set forth in Section 1.4.
"Closing Balance Sheet" has the meaning set forth in Section 1.3(b).
"Closing Date" has the meaning set forth in Section 1.4.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company License Approvals" has the meaning set forth in Section
2.13(i).
"Company Licenses" shall mean any agreement to which the Company or
any Subsidiary is a party under which patents or patent applications owned by a
third party have been licensed to the Company or such Subsidiary.
"Competition Law Approvals" shall mean (a) the expiration or early
termination of the applicable waiting period, if any, under the HSR Act without
there being any continuing objection by any Governmental Entity with respect
thereto, and (b) the filing of any mandatory notifications and the expiration or
early termination of the applicable waiting period, if any, under the Foreign
Competition Laws and the receipt of any authorization, consent, approval or
other order of any foreign Governmental Entity which is required under the
Foreign Competition Laws to be obtained prior to Closing.
"Competition Laws" has the meaning set forth in Section 2.3.
"Confidentiality Agreement" shall mean the Confidentiality Agreement,
dated December 16, 1997, between Chiron and Bayer Corporation.
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"Continuing Employees" has the meaning set forth in Section 4.7(a).
"Critical Care Business" shall mean the business of Chiron and the
Chiron Subsidiaries of researching, developing, manufacturing, using, marketing,
distributing or selling products or services, including instrumentation systems,
reagents and assay kits and testing services for In Vitro Diagnostics (a) in a
point-of care setting, or (b) for blood gases, electrolytes and metabolites,
whether in a laboratory or point-of care setting, and shall include, without
limitation the Rapidlab 800 Series and Rapidpoint 400 Series of instruments and
all assays for use on such instruments and software to support the use of such
products.
"Cross-License Agreement" shall mean the Cross-License Agreement,
substantially in the form attached hereto as Exhibit B.
"December 1997 Balance Sheet" has the meaning set forth in Section
2.7.
"De minimis Amount" has the meaning set forth in Section 8.1(b).
"Disputed Item" has the meaning set forth in Section 1.3(b).
"Environmental Law" shall mean any applicable law, regulation, code,
license, Permit, authorization, order, judgment, decree or injunction
promulgated, issued or required by any Governmental Entity (i) for the
protection of the environment, (including air, water, soil and natural
resources) or (ii) regulating the use, storage, handling, exposure to, release
or disposal of Hazardous Substances, in each case as presently in effect.
"ERISA" has the meaning set forth in Section 2.17(a).
"ERISA Affiliate" has the meaning set forth in Section 2.17(c).
"Excluded Assets" has the meaning set forth in Section 1.7(a).
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"Excluded Businesses" has the meaning set forth in Section 1.5.
"Excluded Chiron Licenses" shall mean any Chiron License other than
the Transferred Chiron Licenses.
"Excluded Chiron Patents" has the meaning set forth in Section
2.13(b).
"Excluded Hepatitis/Retrovirus Patents and Know-How" shall mean (a)
all patents, patent applications and know-how licensed to the Chiron/Ortho Joint
Business under the Chiron/Ortho Agreement and (b) any other patents and patent
applications listed on Schedule 1.7(a).
"Final Balance Sheet" shall mean (A) if no notice of Disputed Items is
delivered by the Purchaser within the period provided in subparagraph (ii) of
Section 1.3(b), the Closing Balance Sheet as prepared by Chiron or (B) if such a
notice of Disputed Items is delivered by the Purchaser, either (y) the balance
sheet as agreed to in writing by Chiron and the Purchaser or (z) the balance
sheet prepared by the Independent Accountant delivered pursuant to subparagraph
(iii) of Section 1.3(b).
"Final Net Assets" shall mean the Net Assets as set forth on the Final
Balance Sheet.
"Financial Statements" has the meaning set forth in Section 2.7.
"Foreign Competition Laws" has the meaning set forth in Section
2.3(b).
"Future Product" shall mean any product other than a Product or a
Product In Development.
"GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time.
"Gen-Probe Agreement" shall mean the Agreement, dated as of June 11,
1998, between Chiron and Gen-Probe Incorporated.
"Governmental Antitrust Entity" has the meaning set forth in Section
4.3(c).
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"Governmental Entity" shall mean any court of competent jurisdiction,
administrative agency or commission or other national, federal, state, local or
foreign government or governmental authority or instrumentality.
"Hazardous Substance" shall mean any substance to the extent listed,
defined, designated or classified as hazardous, toxic, explosive, carcinogenic,
mutagenic or radioactive under any Environmental Law including petroleum and any
derivative or by-product thereof.
"HCV" shall mean hepatitis C virus.
"Heller" shall mean Heller Financial Leasing, Inc.
"Heller Agreement" shall mean the Purchase Agreement, dated June 30,
1998, between Heller and the Company.
"HIV" shall mean human immunodeficiency virus.
"HSR Act" has the meaning set forth in Section 2.3.
"Immunodiagnostics Business" shall mean the business of Chiron and the
Chiron Subsidiaries of researching, developing, manufacturing, using, marketing,
distributing or selling products or services, including instrumentation systems,
reagents and assay kits and testing services, for In Vitro Diagnostics based on
antigen/immunoglobulin binding and other ligand/anti-ligand binding phenomena,
including, without limitation, the ACS-Registered Trademark-: Centaur-TM-,
ACS-Registered Trademark-: 180, ACS-Registered Trademark-: 180 Plus, and
ACS-Registered Trademark-: 180 SE automated chemiluminescence systems and the
immunodiagnostic reagents and test kits that are performed on such systems.
"In Vitro Diagnostics" shall mean the IN VITRO testing of human,
animal or forensic specimens for the purposes of diagnosis, prognosis,
monitoring the progress of, or monitoring the effect of treatment on disease in
the subject from which the specimens were taken.
"Included Businesses" has the meaning set forth in Section 1.6.
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"Included Company Licenses" shall mean any Company License other than
the Transferred Company Licenses.
"Included Company Patents" has the meaning set forth in Section
2.13(a).
"Indemnified Party" has the meaning set forth in Section 8.3.
"Indemnifying Party" has the meaning set forth in Section 8.3.
"Independent Accountant" has the meaning set forth in Section 1.3(b).
"Informatics Business" shall mean the business of Chiron and the
Chiron Subsidiaries of researching, developing, manufacturing, using and
marketing information technologies for the health care industry.
"Intercompany Debt" shall mean all indebtedness for borrowed money of
the Company or any Subsidiary to Chiron or any Other Chiron Affiliate or
Novartis AG or any of its Affiliates.
"June 1998 Balance Sheet" has the meaning set forth in Section 2.7.
"June 1998 Cash" shall mean the Cash as set forth in the June 1998
Balance Sheet.
"June 1998 Third Party Debt" shall mean the Third Party Debt as set
forth in the June 1998 Balance Sheet.
"Knowledge" shall mean, with respect to any Person, the actual
knowledge of any officer with a rank of vice president (or equivalent) or higher
of such Person, the law department of such Person and any other employee of such
Person with responsibility for the particular subject area or subject matter;
PROVIDED that knowledge shall be deemed to include any knowledge that such
officer or employee should have had by reason of his or her position and any
information contained in the files in the possession of such officer or
employee.
"Lien" shall mean any mortgage, pledge, security interest, lien,
charge, encumbrance, equity, claim, option,
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easement, right of way, right of refusal, tenancy, right or restriction on
transfer of any nature whatsoever.
"Losses" means any and all fines, liabilities, judgments, claims,
losses, costs, expenses, or damages, including in each case, interest,
penalties, reasonable attorneys' fees and reasonable costs of investigations and
litigation.
"Major Markets" shall mean the United States, Germany, France, the
United Kingdom, Japan and Italy.
"Material Adverse Effect" shall mean any effect that is material and
adverse to (i) the assets or properties used in, or the condition (financial or
otherwise) or results of operations of the Business taken as a whole or (ii) the
ability of the Purchaser to consummate the transactions contemplated hereby.
"Material Chiron Licenses" has the meaning set forth in Section
2.13(d).
"Material Contract Approvals" has the meaning set forth in Section
2.11(b).
"Material Contracts" has the meaning set forth in Section 2.11.
"Material Included Company Licenses" has the meaning set forth in
Section 2.13(c).
"Material Transferred Chiron Licenses" has the meaning set forth in
Section 2.13(d).
"NAD Business" shall mean the business of Chiron and the Chiron
Subsidiaries of researching, developing, manufacturing, using, marketing,
distributing or selling products or services, including instrumentation systems,
reagents and assay kits and testing services, for In Vitro Diagnostics based on
nucleic acid hybridization, including, without limitation, the Company's
proprietary branched DNA signal amplification technology, the
Quantiplex-Registered Trademark- bDNA 340 system and the Quantiplex-Registered
Trademark- HCV, HBV and HIV tests, and shall include the clinical diagnostic
business conducted pursuant to the Gen-Probe Agreement.
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"Net Assets" shall mean, when used with reference to the June 1998
Balance Sheet, the Closing Balance Sheet and the Final Balance Sheet, as the
case may be, the net assets of the Business calculated in accordance with GAAP
and on a basis consistent with the preparation of the June 1998 Balance Sheet,
but excluding from such calculation (a) all Intercompany Debt, (b) any deferred
tax assets for which the Company will not obtain a future benefit as a result of
the Section 338(h)(10) election, (c) any deferred tax liabilities which the
Company will not be obligated to pay as a result of the Section 338(h)(10)
election, and (d) all intangible property and (e) all accrued federal state,
local and foreign income Taxes and other Taxes based on income.
"Net Operating Losses" has the meaning set forth in Section 5.1.
"Non-Competition Agreement" shall mean the Non-Competition Agreement,
substantially in the form attached hereto as Exhibit D.
"Notice Period" has the meaning set forth in Section 8.3.
"Other Chiron Affiliate" shall mean any Affiliate of Chiron other than
the Company or any Subsidiary.
"Other Chiron Subsidiaries" means all entities as to which Chiron owns
directly or indirectly 50% or more of the voting power or other similar
interests, other than the Company or any Subsidiary.
"Other Intellectual Property" shall mean all Trademarks, unregistered
trademarks, trade names and copyrights and applications therefor, whether or not
subject to statutory registration or protection, owned by Chiron, the Company or
any Subsidiary and used in the Business.
"Pension Plan" has the meaning set forth in Section 2.17(b).
"Permit" shall mean any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
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"Permitted Liens" shall mean the following types of Liens: (a)
statutory Liens of landlords, statutory Liens of banks and rights of set-off,
statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen and
materialmen, and other Liens imposed by law, in each case incurred in the
ordinary course of business consistent with past practice (i) for amounts not
yet overdue or (ii) for amounts that are overdue and that (in the case of such
amounts overdue for a period in excess of 30 days) are being contested in good
faith by appropriate proceedings, so long as such reserves or other appropriate
provisions, if any, as shall be required by GAAP shall have been made for any
such contested amounts; (b) easements, rights-of-way, restrictions,
encroachments, and other minor defects or irregularities in title, in each case
which do not and will not impair in any material respect the conduct of the
Business as currently conducted with respect to the properties and assets
relating to such Lien; (c) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; and (d) any zoning or similar law or right
reserved to or vested in any Governmental Entity to control or regulate the use
of any real property.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization, a Governmental Entity or any other entity.
"Plans" has the meaning set forth in Section 2.17(b).
"Preliminary Cash Consideration" has the meaning set forth in Section
1.2(b).
"Product" means any In Vitro Diagnostic product that is marketed by
Chiron or any of the Chiron Subsidiaries as of the Closing Date.
"Product In Development" means any In Vitro Diagnostic product worked
on as part of or otherwise the subject of the research programs of Chiron or any
Chiron Subsidiary set forth on Schedule 2.13(g) hereto; provided, that in the
case of any such research program relating to markers, "Product In Development"
shall mean only such markers as shall have been specifically identified on
Schedule 2.13(g), in each case as of the Closing Date.
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"Product Registrations" shall mean licenses and approvals to market
and sell the Business's products in the Major Markets, including, without
limitation, all 510(K)s, PMAs and NDAs and equivalents in the foreign Major
Markets.
"Purchased Entity" shall mean the Company and, unless otherwise noted,
references to the Purchased Entity shall include the Purchased Entity and the
Subsidiaries.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Real Property" has the meaning set forth in Section 2.10.
"Records" has the meaning set forth in Section 4.14.
"Resolution Period" has the meaning set forth in Section 1.3(b).
"Retained Liabilities" has the meaning set forth in Section 1.8(b).
"Roche Litigation" shall mean Chiron's action against F. Hoffman
La-Roche, Ltd., among others, filed January 27, 1998 in the District Court for
the Northern District of California, and all related foreign litigation and all
liabilities, costs and expenses related thereto.
"Sanwa Business" shall mean Sanwa Business Credit Corporation.
"Sanwa Business Agreement" shall mean the Purchase Agreement, dated as
of June 24, 1997, between Sanwa Business and the Company.
"Sanwa GmbH" shall mean Sanwa Business Credit (Deutschland) GmbH.
"Sanwa GmbH Agreement" shall mean the Master Agreement, dated
September 11, 1998, between Chiron Diagnostics GmbH and Sanwa GmbH.
"Schedule" shall mean a disclosure schedule delivered by Chiron to the
Purchaser on or prior to the date of this Agreement.
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"Securities Act" has the meaning set forth in Section 2.24.
"Seller's Group" shall mean any "affiliated group" (as defined in
Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) and any combined or unitary group that includes or
has included Chiron or any predecessor of or successor to Chiron (or another
such predecessor or successor).
"Statements of Cash Flows" has the meaning set forth in Section
2.7(a).
"Statements of Operations" has the meaning set forth in
Section 2.7(a).
"Stock" has the meaning set forth in the recitals.
"Subsidiary" shall mean an entity as to which the Company owns
directly or indirectly 50% or more of the voting power or other similar
interests.
"Tax Benefit" has the meaning set forth in Section 5.4(e).
"Tax Cost" has the meaning set forth in Section 5.4(e).
"Tax Proceeding" has the meaning set forth in Section 5.10(a).
"Tax Return" has the meaning set forth in Section 5.1.
"Taxes" has the meaning set forth in Section 5.1.
"Therametrics" shall mean products having both an In Vitro Diagnostics
product component and a Vaccines/Therapeutics product component, wherein such
components are contained in a single package and wherein the information
provided by the In Vitro Diagnostics product component is medically and
functionally related to the IN VIVO effect provided by the Vaccines/Therapeutics
product component.
"Third Party Claim" has the meaning set forth in Section 8.3.
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"Third Party Debt" shall mean (a) all indebtedness for borrowed money
of the Company or any Subsidiary to third parties and (b) all accrued
restructuring costs as reflected on the Balance Sheets; PROVIDED, HOWEVER, that
Third Party Debt shall not include any Intercompany Debt.
"Threshold Amount" has the meaning set forth in Section 8.1(b).
"Trademark License Agreement" shall mean the trademark license
agreement, substantially in the form attached hereto as Exhibit E.
"Trademarks" shall mean trademark and service mark registrations and
applications in any jurisdiction, including any extension, modification or
renewal or any such registration or application.
"Transferred Chiron Licenses" shall mean any Chiron License which
primarily relates to or is used primarily in connection with the Business.
"Transferred Chiron Patents" has the meaning set forth in Section
2.13(b).
"Transferred Company Licenses" shall mean any Company License which
primarily relates to or is used primarily in connection with the Excluded
Business.
"Transferred Company Patents" has the meaning set forth in Section
2.13(a).
"U.S. Employees" has the meaning set forth in Section 2.17(a).
"Vaccines/Therapeutics" shall mean any product that is intended for in
vivo effect regardless of whether the method of administration is in vivo or ex
vivo, to prevent, control, treat, mitigate or alter the course of disease or
otherwise maintain or improve health, including, for the avoidance of doubt, IN
VIVO or EX VIVO genetic manipulation, excluding all In Vitro Diagnostics
products.
"Vaccines/Therapeutics Business" shall mean the business of Chiron or
any Chiron Subsidiary of researching, developing, manufacturing, using,
marketing, distributing and selling Vaccines/Therapeutics.
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ARTICLE X
MISCELLANEOUS
10.1 AMENDMENTS. This Agreement may not be amended or modified
except by the express written consent of the parties hereto.
10.2 ASSIGNMENT. Neither party may assign this Agreement or its
rights or obligations hereunder, whether by operation of law or otherwise, to
any third party without the prior written consent of the other parties hereto;
PROVIDED, HOWEVER, that the Purchaser may assign any of its rights hereunder to
any Affiliate of the Purchaser or any Person, the majority of whose shares are
owned, directly or indirectly, by Bayer AG, without the prior written consent of
the other parties hereto; PROVIDED FURTHER, HOWEVER, that no assignment shall
limit or affect the assignor's obligations hereunder. Any attempted assignment
in violation of this Section 10.2 shall be void.
10.3 NOTICES. All notices or communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
by telefax or sent, postage prepaid, by registered, certified or express mail or
reputable overnight courier service and shall be deemed given when so delivered
by hand, or telefaxed, or if mailed, three days after mailing (one business day
in the case of express mail or overnight courier service), as follows (or such
other address as such party may designate in writing):
To Chiron:
Chiron Corporation
4560 Horton Street
Emeryville, California 94608-2916
Attention: General Counsel
Telefax: (510) 654-5360
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With a copy to:
Sullivan & Cromwell
1888 Century Park East
Los Angeles, California 90067
Attention: Alison S. Ressler
Telefax: (310) 712-8800
To the Purchaser:
Bayer Corporation
Business Group Diagnostics
511 Benedict Avenue
Tarrytown, New York 10591-5097
Attention: General Counsel
Telefax: (914) 524-3594
Bayer Corporation
100 Bayer Road
Pittsburgh, Pennsylvania 15205-9741
Attention: General Counsel
Telefax: (412) 778-4417
With a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Daniel P. Cunningham
Telefax: (212) 474-3700
10.4 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the valid-
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ity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
10.5 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
10.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
10.7 INTERPRETATION. When a reference is made in this Agreement to
an Article, Section, Exhibit or Schedule, such reference is to an Article or
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" and
"including" are used in this Agreement, they are deemed to be followed by the
words "without limitation." For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, (a) the
terms defined include the plural as well as the singular, (b) all accounting
terms not otherwise defined herein have the meanings assigned under GAAP, and
(c) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision.
10.8 ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements, together with any agreement executed and delivered by the parties
concurrently herewith and the Schedules and Exhibits attached hereto and
together with the Confidentiality Agreement, constitutes the entire agreement
between the Purchaser, the Company and Chiron with respect to the subject matter
hereof. There are no representations, warranties, covenants or undertakings
with respect to the subject matter hereof other than those expressly set forth
herein or therein. This Agreement and the Ancillary Agreements supersede all
prior agreements between the parties with respect to the Stock purchased
hereunder and the subject matter hereof, other than the Confidentiality
Agreement.
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10.9 PUBLICITY. Chiron and the Purchaser agree that, from the date
hereof through the Closing Date, no public release or announcement concerning
the transactions contemplated hereby shall be issued by either party without the
prior consent of the other party (which consent shall not be unreasonably
withheld), except as such release or announcement may be required by law or the
rules or regulations of any United States or foreign securities exchange, in
which case the party required to make the release or announcement shall use its
reasonable efforts to allow the other party reasonable time to comment on such
release or announcement in advance of such issuance.
10.10 EXPENSES. Subject to Article V and Article VIII, Chiron and
the Purchaser each shall pay their own expenses incident to the negotiation,
preparation and performance of this Agreement and the Ancillary Agreements and
the transactions contemplated hereby and thereby, including but not limited to
the fees, expenses and disbursements of their respective investment bankers,
accountants and counsel.
10.11 NO THIRD PARTY BENEFICIARIES. Except as provided in Article
VIII, nothing in this Agreement, expressed or implied, is intended to confer
upon any person, other than the parties hereto or their respective successors,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
10.12 JURISDICTION; WAIVERS. Each of the parties hereto hereby
irrevocably submits in any legal action or proceeding relating to or arising out
of this Agreement, any of the Ancillary Agreements or any other document
relating hereto or delivered in connection with the transactions contemplated
hereby or thereby, or for recognition and enforcement of any judgment in respect
thereof, to the exclusive jurisdiction of the United States District Court for
the District of Delaware, and appellate courts thereof. Each of the parties
hereto further (a) consents that any such action or proceeding may be brought in
such court and irrevocably and unconditionally waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in such
court or that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same; (b) agrees that service of process in any
such action or proceeding may be effected by mailing a copy thereof by U.S.
registered or
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certified mail (or any substantially similar form of mail), postage prepaid, to
such party at its address set forth in Section 10.3 or at such other address of
which such party shall have given notice pursuant thereto; and (c) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first above written, by the duly authorized representatives of the
parties hereto.
BAYER CORPORATION
By: /s/ Rolf Classon
-----------------------------------------------
Rolf Classon
Executive Vice President
CHIRON CORPORATION
By: /s/ Sean P. Lance
-----------------------------------------------
Sean P. Lance
President and Chief Executive Officer
CHIRON DIAGNOSTICS CORPORATION
By: /s/ William G. Green
-----------------------------------------------
William G. Green
Assistant Secretary
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EXHIBIT A
ASSET TRANSFER AGREEMENT
This ASSET TRANSFER AGREEMENT ("Agreement") is entered into as of
__________, 19__, between Chiron Corporation, a Delaware corporation ("Chiron"),
and Chiron Diagnostics Corporation, a Delaware corporation ("CDx").
RECITALS
WHEREAS, Chiron and CDx have entered into a Stock Purchase Agreement,
dated as of September 17, 1998 (the "Stock Purchase Agreement"), among Chiron,
CDx and Bayer Corporation, an Indiana corporation (the "Purchaser"), pursuant to
which Chiron has agreed to sell to the Purchaser all the outstanding shares of
Common Stock, par value $10.00 per share (the "Stock"), of CDx;
WHEREAS, in connection with the transactions contemplated by the Stock
Purchase Agreement, Chiron desires to transfer to CDx certain assets related to
the IVD Business (as defined herein) and CDx desires to assume certain
liabilities related to the IVD Business; and
WHEREAS, in connection with the transactions contemplated by the Stock
Purchase Agreement, CDx desires to transfer to Chiron certain assets related to
the Excluded Businesses (as defined in the Stock Purchase Agreement) and Chiron
desires to assume certain liabilities related to the Excluded Businesses.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
TRANSFER OF ASSETS BY CHIRON;
ASSUMPTION OF LIABILITIES BY CDx
1.1 AGREEMENT TO TRANSFER ASSETS. Effective as of the Effective
Time (as defined in Section 3.1 below), Chiron shall, and shall cause the Other
Chiron Subsidiaries to, transfer, convey, assign and deliver to CDx, and CDx
shall acquire and accept, all of their respective right, title and interest, if
any, as of the Effective Time, in and to all assets, properties and rights
(contractual or otherwise) of every kind, nature and description, real, personal
and mixed, tangible and intangible, wherever located, which primarily relate to
or are primarily used in connection with the IVD Business as conducted as of the
Effective Time, including, without limitation, the following if and to
<PAGE>
the extent any of the following assets, properties and rights primarily relate
to or are primarily used in connection with the IVD Business as conducted as of
the Effective Time:
(a) leasehold interests in real property as more fully set forth
in Schedule 1.5.
(b) furniture, equipment, machinery, supplies, vehicles, spare
parts, tools, personal property and other tangible property, wherever located,
as listed on a schedule to be delivered to the Purchaser at least five business
days prior to the Closing Date;
(c) contracts, agreements, instruments, commitments,
understandings, arrangements and purchase and sale orders;
(d) raw materials, work-in-progress and finished goods;
(e) accounts receivable;
(f) product registrations and applications therefor, and all other
licenses, permits, consents, authorizations and approvals of any Governmental
Entity;
(g) registered and unregistered trademarks, service marks,
business names, brand names, trade dress, and copyrights, including the
"Centaur" name and mark with respect to the "Centaur" name, and goodwill
associated with the foregoing and registrations in any jurisdiction of, and
applications to register, the foregoing, including any extension, modification
or renewal or any such registration or application;
(h) trade secrets, know-how and other confidential information;
and
(i) customer and supplier lists.
1.2 RECORDS. Promptly after the Effective Time, Chiron shall, and
shall cause the Other Chiron Subsidiaries to, deliver to CDx originals or
duplicate copies thereof of all books of account and related records, in all
cases in any form or medium and in all cases only to the extent such books and
records relate to the IVD Business.
1.3 OTHER CHIRON CONVEYED ASSETS. Effective as of the Effective
Time, Chiron shall, and shall cause the Other Chiron Subsidiaries to, transfer,
convey, assign and deliver to CDx, and CDx shall acquire and accept, all of
their respective right, title and interest, if any, as of the Effective Time, in
and to the following assets wherever
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located (together with the assets, properties and rights transferred pursuant to
Sections 1.1 and 1.2, the "Chiron Conveyed Assets"):
(a) the Transferred Chiron Patents, the Included Company Patents
and their Related Patent Rights; and
(b) the Transferred Chiron Licenses and the Included Company
Licenses.
1.4 CHIRON RETAINED ASSETS. Notwithstanding anything to the
contrary contained herein, the Chiron Conveyed Assets shall not include any of
the following assets, properties and rights, whether or not such assets,
properties and rights primarily relate to or are primarily used in connection
with the IVD Business:
(a) any interest in real property, whether owned or leased, except
to the extent set forth in Section 1.1(a) and Section 1.5 below;
(b) any patents or patent applications and their Related Patent
Rights other than the Transferred Chiron Patents, the Included Company Patents
and their Related Patent Rights;
(c) any in-license agreements other than the Transferred Chiron
Licenses and the Included Company Licenses;
(d) the contracts and agreements listed on Schedule 1.4;
(e) the Roche Litigation and all other litigation relating to the
Excluded Hepatitis/Retrovirus Patents and Know-How, and all liabilities, costs
and expenses associated therewith; and
(f) the "Therametrics" trademark and, except as set forth in
Section 4.5 of the Stock Purchase Agreement, the "Chiron" name, mark and logo,
including the Centaur logo and mark with respect to the image and related logo
but not the "Centaur" name or mark with respect to the "Centaur" name ((a)
through (f) inclusive, collectively, the "Chiron Retained Assets").
1.5 SUBLEASES OF REAL PROPERTY. Prior to and effective as of the
Effective Time, Chiron and CDx shall execute and deliver a sublease (each, a
"Sublease") in form and substance reasonably satisfactory to the parties hereto
and the Purchaser for that portion of each premises that is leased, subleased or
subsubleased by Chiron and is used by the IVD Business, as more fully set forth
on Schedule 1.5 hereto (the "Subleased Premises"). Each Sublease shall expire
on the date set forth in Schedule 1.5. Each
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Sublease shall otherwise be on the same terms and conditions as the underlying
lease, sublease or subsublease to the extent applicable to the Subleased
Premises.
1.6 AGREEMENT TO ASSUME LIABILITIES. Effective as of the
Effective Time, CDx shall assume from Chiron and the Other Chiron Subsidiaries
all liabilities and obligations of any nature, or claims of such liability or
obligation, whether matured or unmatured, liquidated or unliquidated, fixed or
contingent, known or unknown, whether arising out of occurrences prior to, at or
after the Effective Time, to the extent and only to the extent arising out of or
relating to the IVD Business (as modified by the proviso to this Section 1.6,
the "CDx Assumed Liabilities"), including, without limitation, the following:
(a) all lawsuits and claims commencing after the Effective Time to
the extent and only to the extent arising out of or relating to the conduct of
the IVD Business prior to, on or after the Effective Time; and
(b) all liabilities to the extent arising out of or relating to
the manufacture, distribution or sale of any products or services of the IVD
Business prior to, on or after the Effective Time;
PROVIDED, HOWEVER, that the CDx Assumed Liabilities shall not include (i) the
liabilities referred to in subclauses (C), (D), (E) and (F) of Section 8.1(b)(i)
of the Stock Purchase Agreement or (ii) liabilities to the extent arising out of
or related to the Chiron Retained Assets.
ARTICLE II
TRANSFER OF ASSETS BY CDx;
ASSUMPTION OF LIABILITIES BY CHIRON
2.1 AGREEMENT TO TRANSFER ASSETS. Effective as of the Effective
Time, CDx shall, and shall cause the Subsidiaries to, transfer, convey, assign
and deliver to Chiron, and Chiron shall acquire and accept, all of their
respective right, title and interest, if any, as of the Effective Time, in and
to all assets, properties and rights (contractual or otherwise) of every kind,
nature and description, real, personal and mixed, tangible and intangible,
wherever located, which primarily relate to or are primarily used in connection
with the Excluded Businesses as conducted as of the Effective Time, including,
without limitation, the following if and to the extent such assets, properties
and rights primarily relate to or are primarily used in connection with the
Excluded Businesses as conducted as of the Effective Time:
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(a) furniture, equipment, machinery, supplies, vehicles, spare
parts, tools, personal property and other tangible property, wherever located;
(b) contracts, agreements, instruments, commitments,
understandings, arrangements and purchase and sale orders;
(c) raw materials, work-in-progress and finished goods;
(d) accounts receivable;
(e) product registrations and applications therefor, and all other
licenses, permits, consents, authorizations and approvals of any Governmental
Entity;
(f) trade secrets, know-how and other confidential information;
(g) registered and unregistered trademarks, service marks,
business names, brand names, trade dress, and copyrights, and goodwill
associated with the foregoing and registrations in any jurisdiction of, and
applications to register, the foregoing, including any extension, modification
or renewal or any such registration or application, including, without
limitation, the "Therametrics" trademark and, except as set forth in Section 4.5
of the Stock Purchase Agreement, the "Chiron" name, mark and logo, including the
Centaur logo and mark with respect to the image and related logo but excluding
the "Centaur" name and mark with respect to the "Centaur" name;
(h) customer and supplier lists; and
(i) the Roche Litigation and all other litigation relating to the
Excluded Hepatitis/Retrovirus Patents and Know-How, and all liabilities, costs
and expenses associated therewith.
2.2 RECORDS. Promptly after the Effective Time, CDx shall, and
shall cause the Subsidiaries to, deliver to Chiron originals or duplicate copies
thereof of all books of account and related records, in all cases in any form or
medium and in all cases only to the extent such books and records relate to the
Excluded Businesses.
2.3 OTHER CDX CONVEYED ASSETS. Effective as of the Effective
Time, CDx shall, and shall cause the Subsidiaries to, transfer, convey, assign
and deliver to Chiron, and Chiron shall acquire and accept, all of their
respective right, title and interest, if any, as of the Effective Time, in and
to the following wherever located (together with the assets, properties and
rights transferred pursuant to Sections 2.1 and 2.2, the "CDx Conveyed Assets"):
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(a) the Transferred Company Patents, the Excluded Chiron Patents
and their Related Patent Rights, including, without limitation, the Excluded
Hepatitis/Retrovirus Patents and Know-How and their Related Patent Rights; and
(b) the Transferred Company Licenses and the Excluded Chiron
Licenses.
2.4 CDX RETAINED ASSETS. Notwithstanding anything to the contrary
contained herein, the CDx Conveyed Assets shall not include any of the following
assets, properties and rights, whether or not such assets, properties and rights
primarily relate to or are primarily used in connection with the Excluded
Businesses:
(a) any patents or patent applications and their Related Patent
Rights other than the Transferred Company Patents and the Excluded Chiron
Patents and their Related Patent Rights;
(b) any in-license agreements other than the Transferred Company
Licenses and the Excluded Chiron Licenses; and
(c) the "Centaur" name and mark with respect to the "Centaur"
name, but excluding the Centaur logo and mark with respect to the image and
related logo ((a) through (c) inclusive, collectively, the "CDx Retained
Assets").
2.5 AGREEMENT TO ASSUME LIABILITIES. Effective as of the Effective
Time, Chiron shall assume from the Company and the Subsidiaries all liabilities
and obligations of any nature, or claims of such liability or obligation,
whether matured or unmatured, liquidated or unliquidated, fixed or contingent,
known or unknown, whether arising out of occurrences prior to, at or after the
Effective Time, to the extent and only to the extent arising out of or relating
to the Excluded Businesses (as modified by the proviso to this Section 2.5, the
"Chiron Assumed Liabilities"), including, without limitation, the following:
(a) all lawsuits and claims commencing after the Effective Time to
the extent and only to the extent arising out of or relating to the conduct of
Excluded Businesses prior to, on or after the Effective Time;
(b) all liabilities to the extent arising out of or relating to
the manufacture, distribution or sale of any products or services of the
Excluded Businesses prior to, on or after the Effective Time; and
(c) the liabilities referred to in subclauses (C), (D), (E) and
(F) of Section 8.1(b)(i) of the Stock Purchase Agreement;
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PROVIDED, HOWEVER, that the Chiron Assumed Liabilities shall not include any
liabilities to the extent arising out of or related to the CDx Retained Assets.
ARTICLE III
EFFECTIVE TIME AND CONSIDERATION
3.1 EFFECTIVE TIME. The transfers and assumptions contemplated by
this Agreement will become effective immediately prior to the Closing of the
sale of Stock under the Stock Purchase Agreement (the "Effective Time").
3.2 CONSIDERATION. In full consideration for the transfer,
conveyance, assignment and delivery by Chiron and the Other Chiron Subsidiaries
to CDx of the Chiron Conveyed Assets and assumption by Chiron of the Chiron
Assumed Liabilities and the grant by Chiron to CDx of certain licenses pursuant
to the Cross-License Agreement, CDx shall, and shall cause the Subsidiaries to,
transfer, convey, assign and deliver to Chiron the CDx Conveyed Assets and
assume, pay, defend and discharge the CDx Assumed Liabilities and CDx shall
grant to Chiron certain licenses pursuant to the Cross-License Agreement. In
full consideration for the transfer, conveyance, assignment and delivery by CDx
and the Subsidiaries to Chiron of the CDx Conveyed Assets and assumption by CDx
of the CDx Assumed Liabilities and the grant by CDx to Chiron of certain
licenses pursuant to the Cross-License Agreement, Chiron shall, and shall cause
the Other Chiron Subsidiaries to, transfer, convey, assign and deliver to CDx
the Chiron Conveyed Assets and assume, pay, defend and discharge the Chiron
Assumed Liabilities and Chiron shall grant to CDx certain licenses pursuant to
the Cross-License Agreement.
3.3 CLOSING DELIVERIES. At or prior to the Effective Time, Chiron
shall, and shall cause the Other Chiron Subsidiaries to, and CDx shall, and
shall cause the Subsidiaries to, take such actions and execute and deliver such
agreements, bills of sale, and other instruments and documents as necessary or
appropriate to effect the transactions contemplated by this Agreement in
accordance with its terms, including, without limitation, the following:
(a) Chiron shall execute and deliver to CDx a General Conveyance
and Bill of Sale and an Assignment and Assumption Agreement, in form and
substance reasonably satisfactory to the parties hereto and the Purchaser;
(b) CDx shall execute and deliver to Chiron a General Conveyance
and Bill of Sale and an Assignment and Assumption Agreement in form and
substance reasonably satisfactory to the parties hereto and the Purchaser; and
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(c) Chiron and CDx shall execute and deliver the Subleases.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 THIRD PARTY RIGHTS. All transfers of assets, properties and
rights hereunder are subject to any third party rights which exist as of the
Effective Date.
4.2 FURTHER ASSURANCES. After the Effective Time, each party
hereto shall execute, acknowledge and deliver to the other party and file and
record with any relevant Governmental Entity all such further instruments,
notices, and other documents, and do all such other acts consistent with this
Agreement as may reasonably be necessary or advisable to carry out its
obligations under this Agreement or to more fully assure Chiron or CDx, as the
case may be, and their successors and assigns, of the rights, titles and
interests in and to the assets, properties and rights transferred, conveyed,
assigned and delivered hereunder to Chiron or CDx, as the case may be.
4.3 AMENDMENTS. This Agreement may not be modified, supplemented
or changed in any respect except by a writing duly executed by the parties
hereto.
4.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
4.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by each of the parties
hereto, their successors and assigns.
4.6 NOTICES AND ADDRESSES. All notices or other communications
required or permitted under this Agreement shall be in writing and shall be
delivered by hand or sent by telefax or sent, postage prepaid, by registered,
certified or express mail or reputable overnight courier service and shall be
deemed given when so delivered by hand or telefax, or if mailed, three days
after mailing (one business day in the case of express mail or overnight courier
service), as follows:
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If to Chiron: Chiron Corporation
4560 Horton Street
Emeryville, California 94608-2916
Telefax: (510) 654-5360
Attention: Chief Executive Officer
Copy: General Counsel
If to CDx: Chiron Diagnostics Corporation
333 Coney Street
East Walpole, Massachusetts 02032-1597
Telefax: (508) 660-8100
Attention: President
in each case, with a copy to: Bayer Corporation
Business Group Diagnostics
511 Benedict Avenue
Tarrytown, New York 10591-5097
Telefax: (914) 524-3594
Attn: General Counsel
Bayer Corporation
100 Bayer Road
Pittsburgh, Pennsylvania 15205-9741
Telefax: (412) 778-4417
Attn: General Counsel
or at such other address as any party may designate by written notice in the
manner set forth above.
4.7 COUNTERPARTS. This Agreement, and any amendments hereto, may
be executed in any number of counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
instrument.
4.8 DEFINITIONS.
(a) Except as set forth in paragraph (b) of this Section 4.8, all
capitalized terms used but not defined herein shall have the meaning set forth
in the Stock Purchase Agreement.
(b) For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
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(i) "IVD Business" shall mean the business of Chiron or any
Other Chiron Subsidiary of researching, developing, manufacturing, using,
marketing, distributing or selling products or services for In Vitro
Diagnostics (including, without limitation, the Included Businesses).
(ii) "Related Patent Rights" shall mean, with respect to any
patent or patent application, the inventions disclosed and claimed in such
patent or patent application, any and all divisions, extensions, renewals,
reexaminations, certificates, continuations, and any other patents or
patent applications entitled to the priority of such patent or patent
application, and the right to apply for and receive such patents.
4.9 ENTIRE AGREEMENT. This Agreement, together with the Stock
Purchase Agreement, the other Ancillary Agreements and any agreement executed
and delivered by the parties hereto concurrently herewith and the Schedules and
Exhibits attached hereto, constitutes the entire agreement between Chiron and
CDx with respect to the subject matter hereof. There are no representations,
warranties, covenants or undertakings with respect to the subject matter hereof
other than those expressly set forth herein or therein. This Agreement, the
Stock Purchase Agreement and the other Ancillary Agreements supersede all prior
agreements between the parties with respect to the transfer of the assets,
properties and rights hereunder and the subject matter hereof, other than the
Confidentiality Agreement.
4.10 JURISDICTION; WAIVERS. Each of the parties hereto hereby
irrevocably submits in any legal action or proceeding relating to or arising out
of this Agreement or any other document relating hereto or delivered in
connection with the transactions contemplated hereby or thereby, or for
recognition and enforcement of any judgment in respect thereof, to the exclusive
jurisdiction of the United States District Court of the District of Delaware,
and appellate courts thereof. Each of the parties hereto further (a) consents
that any such action or proceeding may be brought in such court and irrevocably
and unconditionally waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same; (b) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by U.S. registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such party at
its address set forth in Section 4.6 or at such other address of which such
party shall have given notice pursuant thereto; and (c) agrees that nothing
herein shall affect the right to effect service of process in any other manner
permitted by law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
CHIRON CORPORATION
By:
--------------------------
Name:
Title:
CHIRON DIAGNOSTICS CORPORATION
By:
--------------------------
Name:
Title:
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***CONFIDENTIAL TREATMENT REQUESTED***
EXHIBIT B
CROSS-LICENSE AGREEMENT
This Cross-License Agreement, (this "Agreement") is made, effective as of the
Effective Date, as defined below, by and between Chiron Corporation, a Delaware
corporation ("Chiron"), and Chiron Diagnostics Corporation, a Delaware
corporation ("CDC").
BACKGROUND
1. Chiron and Bayer Corporation, an Indiana corporation ("Purchaser"), have
entered into that certain Stock Purchase Agreement dated as of September 17,
1998 (the "Stock Purchase Agreement"), pursuant to which Purchaser is acquiring
the stock of CDC, effective on the Closing, as defined in the Stock Purchase
Agreement (such time referred to herein as the "Effective Date"). Pursuant to
the Stock Purchase Agreement, Chiron and CDC have further entered into that
certain Asset Transfer Agreement (the "Asset Transfer Agreement"), pursuant to
which, prior to the Closing, Chiron will transfer to CDC certain assets of
Chiron. Also pursuant to the Asset Transfer Agreement, prior to the Closing, CDC
will transfer to Chiron certain assets of CDC. Chiron and CDC each wish to
grant licenses to the other under certain patent rights and know-how which will
be owned by the licensing party after giving effect to the Asset Transfer
Agreement, all as further described below.
2. Chiron currently owns or controls certain patent rights relating to
hepatitis C virus ("HCV") and human immunodeficiency virus ("HIV"), and after
giving effect to the Asset Transfer Agreement, Chiron will own or control
certain patent rights theretofore owned or controlled by CDC relating to each of
HCV and HIV. Upon the Effective Date, Chiron is willing to grant licenses to
CDC under certain patent rights relating to each of HCV and HIV for use in
nucleic acid probe assays for in vitro diagnostics (excluding use in Blood
Screening, as defined below), all on the terms and conditions set forth herein.
3. Chiron currently owns or controls certain patent rights other than those
related to HCV or HIV, and after giving effect to the Asset Transfer Agreement,
Chiron will own or control certain patent rights theretofore owned or controlled
by CDC other than those related to HCV and HIV. Upon the Effective Date, Chiron
is willing to grant certain licenses to CDC under such patent rights, all on the
terms and conditions set forth herein.
4. CDC currently owns or controls certain patent rights, and after giving
effect to the Asset Transfer Agreement, CDC will own or control certain patent
rights theretofore owned or controlled by Chiron. Upon the Effective Date, CDC
is willing to grant certain licenses to Chiron under all such patent rights, all
on the terms and conditions set forth herein.
5. Each party is willing to grant to the other certain licenses under
certain know-how, all on the terms and conditions set forth herein.
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AGREEMENT
NOW, THEREFORE, in consideration of the above provisions and the mutual
covenants contained herein, the parties agree as follows:
1. DEFINITIONS
Capitalized terms not defined in this Agreement shall have the meanings set
forth in the Stock Purchase Agreement. The following defined terms shall have
the meanings set forth below:
1.1 "AFFILIATE" shall mean an entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with, a specified entity. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any entity,
means (a) the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that entity, whether
through the ownership of voting securities or by contract or otherwise, and (b)
the ownership of at least fifty percent (50%) of the voting securities of that
entity. Notwithstanding anything to the contrary contained herein, "Affiliate"
shall not include, in the case of Chiron, Novartis AG or any Affiliate of
Novartis AG (other than Chiron and any of its direct or indirect subsidiaries).
For clarity of understanding, following the Effective Date, Affiliates of CDC
shall mean Purchaser and its Affiliates.
1.2 "ANCILLARY AGREEMENTS" shall have the meaning set forth in the
Stock Purchase Agreement.
1.3 "BLOOD SCREENING" shall mean (i) the screening of blood, plasma or
blood components intended for transfusion or for use in blood products (e.g.,
immunoglobulins), and (ii) the screening of any biological materials intended
for transfusion or transplantation, in each case from any donor, including
autologous donors.
1.4 "CDC HCV/HIV PROBE PRODUCT" shall mean a Probe IVD Product which
is researched, developed, manufactured, used or sold by CDC, a CDC Affiliate or
a permitted sublicensee of CDC, under circumstances which would, in the absence
of the licenses granted under Section 2.1, constitute an infringement of a Valid
Claim of a Chiron HCV/HIV Patent.
1.5 "CDC KNOW-HOW" shall mean all Know-How which is owned or
controlled by CDC or the Subsidiaries, as of the Effective Date, after giving
effect to the Asset Transfer Agreement, except for Know-How which CDC is
prohibited from licensing to Chiron hereunder pursuant to third party agreements
binding on CDC as of the Effective Date.
1.6 "CDC NON-HCV/HIV PRODUCT" shall mean an IVD Product (i) which is
researched, developed, manufactured, used or sold by or on behalf of CDC, a CDC
Affiliate or a permitted sublicensee of CDC, under circumstances which would, in
the absence of the licenses granted under Section 2.2, constitute an
infringement of a Valid Claim of a Chiron Non-HCV/HIV Patent, and (ii) which
does not infringe a Valid Claim of a Chiron HCV/HIV Patent.
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1.7 "CDC PATENT" shall mean (i) any patent or patent application (or
any patent issued thereon) which is within Included Company Patents or
Transferred Chiron Patents, and any divisions, extensions, renewals, reissues,
reexamination certificates and continuations of such patents and patent
applications; or (ii) any invention which is the subject of a patent application
filed by CDC or its then Affiliates, or a written invention disclosure received
by CDC or its then Affiliates from a person obligated to assign inventions to
CDC or its then Affiliates, in each case within [CONFIDENTIAL TREATMENT
REQUESTED] following the Effective Date, which falls within the scope of the
claims of any Included Company Patent, Transferred Chiron Patent, a patent or
patent application referenced in Schedule 1.7(a) of the Stock Purchase
Agreement, an Excluded Chiron Patent or a Transferred Company Patent, together
with any patent applications claiming such invention (or any patent issued
thereon) and any divisions, extensions, renewals, reissues, reexamination
certificates and continuations thereof; or (iii) any CDC Sublicensable Patent as
to which Chiron has elected, pursuant to Section 2.6, to take a sublicense.
1.8 "CDC SUBLICENSABLE PATENT" shall mean any patent or patent
application (i) which is licensed to CDC or the Subsidiaries by a third party as
of the Effective Date; or which is licensed to Chiron or any Other Chiron
Affiliate by a third party under a license agreement which is assigned to CDC
pursuant to the Asset Transfer Agreement; and (ii) as to which CDC has the right
to grant a sublicense to Chiron.
1.9 "CHIRON HCV/HIV PATENT" shall mean (i) any patent or patent
application (or any patent issued thereon) listed in Schedule 1.7(a) of the
Stock Purchase Agreement, and any divisions, extensions, renewals, reissues,
reexamination certificates and continuations of such patents and patent
applications; or (ii) any invention which is the subject of a patent application
filed by Chiron or its Affiliates, or a written invention disclosure received by
Chiron or its then Affiliates from a person obligated to assign inventions to
Chiron or its then Affiliates, in each case within the [CONFIDENTIAL TREATMENT
REQUESTED] following the Effective Date, which falls within the scope of the
claims of a patent or patent application listed in Schedule 1.7(a) of the Stock
Purchase Agreement, together with any patent applications claiming such
invention (or any patent issued thereon) and any divisions, extensions,
renewals, reissues, reexamination certificates and continuations thereof; or
(iii) any Chiron Sublicensable Patent with respect to HCV or HIV as to which CDC
has elected, pursuant to Section 2.5, to take a sublicense.
1.10 "CHIRON IVD KNOW-HOW" means that Know-How which is owned or
controlled by Chiron or any Other Chiron Affiliate, as of the Effective Date,
after giving effect to the Asset Transfer Agreement, which relates to the
Included Businesses, except for Know-How which Chiron is prohibited from
licensing to CDC hereunder pursuant to third party agreements binding on Chiron
as of the Effective Date.
1.11 "CHIRON NON-HCV/HIV PATENT" shall mean (i) any patent or patent
application (or any patent issued thereon) which is within Excluded Chiron
Patents, and any divisions, extensions, renewals, reissues, reexamination
certificates and continuations of such patents and patent applications; or (ii)
any invention which is the subject of a patent application filed by Chiron or
its Affiliates, or a written invention disclosure received by Chiron or its
Affiliates from a person obligated to assign inventions to Chiron or its
Affiliates, in each case within the [CONFIDENTIAL TREATMENT REQUESTED] following
the Effective Date, which falls
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within the scope of the claims of any Included Company Patent, Transferred
Company Patent, Excluded Chiron Patent or Transferred Chiron Patent, together
with any patent applications claiming such invention (or any patent issued
thereon) and any divisions, extensions, renewals, reissues, reexamination
certificates and continuations thereof; or (iii) any Chiron Sublicensable Patent
other than those with respect to HCV or HIV, as to which CDC has elected,
pursuant to Section 2.5, to take a sublicense.
1.12 "CHIRON SUBLICENSABLE PATENT" shall mean a patent or patent
application which is subject to a license agreement identified as an Excluded
Chiron License, or a Transferred Company License, or any other license agreement
covering patents or patent applications which are used in Products or Products
In Development as of the Effective Date, in each case, as to which Chiron has
the right to grant a sublicense to CDC.
1.13 "INFORMATICS PRODUCT" shall mean any product or service
consisting of information technology for use in healthcare, excluding IVD
Products.
1.14 "IVD PRODUCT" shall mean a product for use in IN VITRO testing of
human specimens for the purpose of diagnosis, prognosis, or monitoring the
progress of disease or monitoring the effect of treatment of disease, in the
human from which the specimens were taken. For the avoidance of doubt, IVD
Products expressly exclude all products for use in Blood Screening, and all
Vaccine/Therapeutic Products.
1.15 "KNOW-HOW" shall mean unpatented inventions, discoveries,
information, trade secrets, data, results and biological materials.
1.16 "LICENSED CDC PRODUCT" shall mean a CDC HCV/HIV Probe Product or a
CDC Non-HCV/HIV Product.
1.17 "Licensed Chiron Patent" shall mean a Chiron HCV/HIV Patent or a
Chiron Non-HCV/HIV Patent.
1.18 "LICENSED CHIRON PRODUCT" shall mean a product which is
researched, developed, manufactured, used or sold by Chiron, a Chiron Affiliate
or a permitted sublicensee, under circumstances which would, in the absence of
the licenses granted under Section 2.3 or 2.4, constitute an infringement of a
Valid Claim of a CDC Patent.
1.19 "NET SALES" shall mean the amount billed or invoiced for products
sold by CDC, its Affiliates, or its sublicensees, less:
i) Discounts actually allowed and taken;
ii) Amounts repaid or credited by reason of rejection or return;
iii) To the extent separately stated on purchase orders,
invoices or other documents of sale, taxes levied on and/or other
governmental charges made as to production, or transportation or
insurance charges;
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iv) The reasonable value of the instrument, instrument financing,
consumables other than the products in question, and service
components of an operating or capital lease for instrumentation
on which the products are used, for which the charges are included
in the price of the products purchased by the lessee, provided
that the methods for determining such values shall be proposed by
CDC and subject to Chiron's written consent, not to be
unreasonably withheld;
v) Charges for freight, handling and transportation paid by the
selling entity; and
vi) Sales, use and value-added taxes and other similar taxes incurred
and separately stated on invoices.
1.19.1 Net Sales shall include all sales to non-Affiliate third
parties, including sales to Authorized Distributors in countries where,
due to regulatory constraints and/or market practice, substantially all
sales of the relevant CDC HCV/HIV Probe IVD Product and competitive third
party products are made through Authorized Distributors, provided that
CDC shall use reasonable efforts in connection with sales to such
Authorized Distributors to comply with clause (i) immediately below.
With respect to sales to all other Authorized Distributors, if Net Sales
are based on the transfer price to the Authorized Distributor rather than
end user sales, either (i) Net Sales on which royalties shall be
calculated shall be deemed to be not less than the higher of the average
selling price for the applicable product in the United States or the
European Union, or (ii) the parties shall adopt another mechanism for
preserving for Chiron the same economics as if such sales had been made
by CDC or its Affiliate or its sublicensee rather than the Authorized
Distributor. Any such mechanism shall be proposed by CDC and shall be
subject to Chiron's written consent, which shall not be unreasonably
withheld.
1.19.2 For clarity of understanding, Net Sales shall not include
any product furnished to third parties for which no payment is received,
such as experimental, test market, promotional or other free goods. On
the other hand, Net Sales shall include any product furnished in return
for payment, whether or not such product is for commercial, research or
other use. For clarity of understanding, Minimum Royalties shall apply
to each Unit of product shipped to a customer for any purpose, except for
Units supplied to third parties at no charge (i) for use in Purchaser's
preclinical or clinical trials; or (ii) for testing, quality control or
evaluation purposes. Without limiting the foregoing, products furnished
to third parties at price discounts, including without limitation free
goods furnished as part of sales promotions, shall be subject to Minimum
Royalties. A sale shall be deemed to have been made and Earned Royalties
or Maximum Royalties incurred, (except as specifically set forth in this
Section 1.19.2) when the product is shipped ("Shipped"); provided that
where an invoice is issued, the obligations to pay Earned Royalties and
Minimum Royalties hereunder shall arise on the invoice date. Sales to or
between Affiliates shall not be included in Net Sales until an Affiliate
consumes the product in providing a commercial service for a
non-Affiliate third party or Ships the product to a non-Affiliate third
party.
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1.19.3 In the event that product subject to royalties hereunder is
sold in combination with another product or active component, other than
instrumentation covered under Section 1.19(iv) above, for a single price
(a "Combination Product"), Net Sales from sales of a Combination Product,
for purposes of calculating royalties due or allocating profits under
this Agreement shall be calculated by multiplying the Net Sales of that
Combination Product by the fraction A/(A+B), where A is the average per
unit selling price in the country of sale, during the applicable
reporting period, of the product subject to royalties hereunder if sold
separately in the country of sale and B is the average per unit selling
price in the country of sale, during the applicable reporting period, of
the other product(s) or component(s) sold separately in the country of
sale. In the event that no such separate sales are made, Net Sales, for
purposes of determining royalty payments on such Combination Products,
shall be a reasonable apportionment of the gross amount invoiced therefor
based upon the relative contribution of the product subject to royalties
hereunder to the price of the Combination Product. Such apportionment
shall be determined by CDC based upon its past practice and experience,
and shall be subject to Chiron's written consent, which shall not be
unreasonably withheld.
1.19.4 In the event that CDC or a CDC Affiliate performs assays
for commercial purposes utilizing CDC HCV/HIV Probe Products, Net Sales
shall mean the invoiced amount for the patient result provided as a
result of performance of such assays, less a reasonable deduction for the
value of the services and or other products provided therewith, less the
applicable deductions pursuant to Section 1.19. The allocation of value
to services or other products provided shall be determined by CDC based
upon its past practice and experience, and shall be subject to Chiron's
written consent, which shall not be unreasonably withheld.
1.20 "OPEN KIT" shall mean a bDNA based assay kit comprising solely the
generic components of bDNA assay kits, then offered as IVD Products, and
excluding any target probe(s).
1.21 "PROBE IVD PRODUCT" shall mean an IVD Product for the detection or
quantification of nucleic acid sequences.
1.22 "RESEARCH TOOL" shall mean a product sold for research use only
and not for use as an IVD Product, the manufacture, use or sale of which, but
for the licenses granted under Section 2.4, would infringe a CDC Patent.
Notwithstanding the foregoing, Research Tools specifically exclude Open Kits.
1.23 "THERAMETRICS PRODUCT" shall mean a product having both an IVD
Product component and a Vaccine/Therapeutic Product component, wherein such
components are contained in a single package and wherein the information
provided by the IVD Product component is medically and functionally related to
the IN VIVO effect provided by the Vaccine/Therapeutic Product component.
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1.24 "UNIT" shall mean the number of individual patient results
generated by the use of a CDC HCV/HIV Probe Product, such that the number of
Units contained in such CDC HCV/HIV Probe Product equals the number of patient
results which are obtained through use of such CDC HCV/HIV Probe Product assay
kit, as determined in a manner to be proposed by CDC, and subject to Chiron's
written consent, which shall not be unreasonably withheld.
1.25 "VACCINE/THERAPEUTIC PRODUCT" shall mean any product that is
intended for IN VIVO effect regardless of whether the method of administration
is IN VIVO, or EX VIVO, to prevent, control, treat, mitigate or alter the course
of disease or otherwise maintain or improve health, including for the avoidance
of doubt, IN VIVO or EX VIVO genetic manipulation, excluding all IVD Products.
1.26 "VALID CLAIM" shall mean a claim in any issued, active, unexpired
Licensed Chiron Patent or CDC Patent (as the context indicates) which has not
been withdrawn, canceled, lapsed or disclaimed, or held unpatentable, invalid or
unenforceable by a non-appealed or nonappealable decision by a court or other
appropriate body of competent jurisdiction. The scope of a Valid Claim shall be
limited to its terms as defined by any such court or decision-making body of
competent jurisdiction.
2. LICENSE AND OPTION GRANTS
2.1 CHIRON HCV/HIV PATENTS. Subject to the terms and conditions of
this Agreement and subject to the rights of third parties under existing license
agreements listed in Schedule 2.13(j) of the Stock Purchase Agreement, Chiron
hereby grants to CDC and its Affiliates, for so long as they remain Affiliates,
a worldwide license under the Chiron HCV/HIV Patents to research, develop, make,
have made, use and sell CDC HCV/HIV Probe Products. Such license shall bear
royalties in accordance with Section 3.1.
2.1.1 The license granted under this Section 2.1 is transferable
only pursuant to Section 11.5. CDC shall have the right to grant sublicenses
hereunder as follows:
(a) CDC shall not grant any sublicenses, with respect to
HCV or HIV, prior to the earlier of the effective date of the first license
granted by Chiron pursuant to Section 2.1.3, or the first commercial sale of a
Probe IVD Product by Chiron pursuant to Section 2.1.3, with respect to HCV or
HIV, respectively.
(b) Thereafter, CDC may, with respect to each of HCV and
HIV, grant up to [CONFIDENTIAL TREATMENT REQUESTED], on a cumulative basis. In
lieu of [CONFIDENTIAL TREATMENT REQUESTED], CDC may elect to offer [CONFIDENTIAL
TREATMENT REQUESTED] with respect to each of HCV and HIV, in each of the four
regions identified in Section 2.1.3(b), on a cumulative basis.
(i) Notwithstanding the foregoing, CDC shall not
grant any such sublicense, whether worldwide or regional, without Chiron's prior
written consent (which shall not be unreasonably withheld), [CONFIDENTIAL
TREATMENT REQUESTED].
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(ii) After the test set forth in Section 2.1.1 (b)
(i) has been satisfied, CDC may grant sublicenses in its discretion, subject to
the limits of this Section 2.1.1.
(c) Each sublicense granted by CDC hereunder with respect
to HCV shall bear earned royalties and minimum royalties which are at least
[CONFIDENTIAL TREATMENT REQUESTED] (measured as [CONFIDENTIAL TREATMENT
REQUESTED] of the earned royalties or minimum royalties) [CONFIDENTIAL TREATMENT
REQUESTED] earned royalties and minimum royalties payable by [CONFIDENTIAL
TREATMENT REQUESTED] licensees of Chiron pursuant to Section 2.1.3, with respect
to HCV, in the relevant region; provided that after Chiron has granted
[CONFIDENTIAL TREATMENT REQUESTED] authorized under Section 2.1.3 with respect
to any region, or Chiron is engaged in the sale of Probe IVD Product directed to
HCV and Chiron has granted [CONFIDENTIAL TREATMENT REQUESTED] authorized under
Section 2.1.3 with respect to HCV with respect to any region, CDC shall not be
required to impose on its sublicensees earned royalties and minimum royalties
which are [CONFIDENTIAL TREATMENT REQUESTED] than the [CONFIDENTIAL TREATMENT
REQUESTED] earned royalties and minimum royalties payable by [CONFIDENTIAL
TREATMENT REQUESTED] of Chiron pursuant to Section 2.1.3 with respect to HCV in
the relevant region.
(d) The Earned Royalties and Minimum Royalties payable by
CDC to Chiron under this Agreement with respect to sublicensee sales in any
region shall be equal to the applicable amounts payable pursuant to Exhibit A
hereto [CONFIDENTIAL TREATMENT REQUESTED].
(e) Except as provided in this Section 2.1.1, any
sublicense permitted under this Section 2.1.1 shall be subject to all of the
terms and conditions of this Agreement.
(f) In the event that a sublicense granted by CDC pursuant
to Section 2.1.1(b) is terminated, CDC shall have the right to replace such
license consistent with the limitations set forth in this Section 2.1.1.
2.1.2 CDC acknowledges and agrees that the inclusion of CDC
Affiliates within the license grant pursuant to Section 2.1 is intended to
enable CDC to utilize the manufacturing and sales capabilities of its Affiliates
in connection with the manufacture and sale of CDC HCV/HIV Probe Products in a
manner substantially similar to the involvement of such Affiliates in the
manufacture and sale of Purchaser's products generally. CDC and its Affiliates
shall not evade the sublicensing provisions of Section 2.1.1 by creating
affiliates specifically in connection with CDC HCV/HIV Probe Products, or
through other third party arrangements such as joint ventures, collaborations,
or distribution arrangements with distributors other than Authorized
Distributors as defined herein. CDC and its Affiliates are licensed hereunder
only to sell or distribute CDC HCV/HIV Probe Products, under the label, name and
trademark of CDC or its Affiliates, only through the sales force of CDC or its
Affiliates, or through the following entities (which entities are referred to
herein as "Authorized Distributors"): (i) local third party distributors which
are not engaged, and which are not affiliates (based on the criteria in Section
1.1, except that the definition of control shall be based on either
Section 1.1(a) or (b)) of any entity which is engaged, in the global sale of
diagnostic products or (ii) an entity to which CDC is then authorized to grant a
sublicense
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pursuant to Section 2.1.1 and with which CDC then enters into a distribution
agreement in lieu of granting a sublicense. CDC and its Affiliates are not
licensed to perform OEM manufacturing of CDC HCV/HIV Probe Products for a third
party other than an Authorized Distributor; to supply CDC HCV/HIV Probe Products
for resale to any third party other than an Authorized Distributor; or to permit
any Authorized Distributor or other third party to sell any CDC HCV/HIV Probe
Product under another third party label, name or trademark or to permit any
Authorized Distributor or other third party to sell any CDC HCV/HIV Probe
Product under its own label, name or trademark for use on an instrument bearing
the label name or trademark of another party, except pursuant to a sublicense
authorized pursuant to Section 2.1.1.
2.1.3 The license granted to CDC and its Affiliates under this
Section 2.1 shall be semi-exclusive with respect to Probe IVD Products.
Semi-exclusive means that, in addition to licenses to third parties existing as
of the date of the Stock Purchase Agreement, Chiron retains the right to
practice under the Chiron HCV/HIV Patents itself, subject to the Non-Competition
Agreement, and/or to grant [CONFIDENTIAL TREATMENT REQUESTED] under the Chiron
HCV/HIV Patents, in each case to research, develop, make, have made, use and
sell Probe IVD Products with respect to each of HCV and HIV, as follows:
(a) Except to the extent CDC otherwise consents pursuant
to Section 2.1.3(d) below, with respect to each of HCV and HIV, Chiron may grant
up to [CONFIDENTIAL TREATMENT REQUESTED] with respect to Probe IVD Products if
Chiron is not directly engaged in the sale of Probe IVD Products directed to HCV
or HIV, as the case may be, or Chiron may grant [CONFIDENTIAL TREATMENT
REQUESTED] if Chiron is directly engaged in the sale of Probe IVD Products
directed to HCV or HIV, as the case may be.
(b) (i) If Chiron has granted one worldwide license
pursuant to Section 2.1.3(a), and Chiron is not then directly engaged in the
sale of Probe IVD Products with respect to HCV or HIV, as applicable, Chiron
shall thereafter have the right, in Chiron's sole discretion, in lieu of the
[CONFIDENTIAL TREATMENT REQUESTED] permitted pursuant to Section 2.1.3(a), to
grant a license for each of HCV and HIV in each of the following four regions:
(aa) North America, (bb) the European Union, (cc) Japan and (dd) all other
countries of the world.
(ii) If Chiron has not granted any worldwide
license pursuant to Section 2.1.3(a), and Chiron is not directly engaged in the
sale of Probe IVD Products with respect to HCV or HIV, as applicable, Chiron
shall have the right to grant up to [CONFIDENTIAL TREATMENT REQUESTED] for each
of HCV and HIV in each of the four regions described above with CDC's prior
written consent. Such regional sublicenses may not be granted until the
expiration of [CONFIDENTIAL TREATMENT REQUESTED] after the Effective Date.
After the [CONFIDENTIAL TREATMENT REQUESTED] the Effective Date, regional
sublicenses pursuant to this Section 2.1.3 (b) (ii) may be granted only with
CDC's prior written consent, not to be unreasonably withheld, unless and until
Chiron has granted [CONFIDENTIAL TREATMENT REQUESTED]; and thereafter Chiron
shall have the right to grant any further regional licenses pursuant to this
Section 2.1.3 (b) at its sole discretion. In the event that Chiron elects to
grant [CONFIDENTIAL TREATMENT REQUESTED] with respect to HCV, the provisions of
Paragraph 3(b) of Exhibit A shall apply in lieu of the provisions of Paragraph
3(a) of Exhibit A.
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(c) If Chiron chooses to engage directly in sales of Probe
IVD Products directed to HCV (subject to the Non-Compete Agreement), such
activities of Chiron shall replace [CONFIDENTIAL TREATMENT REQUESTED] Chiron is
permitted to grant under Section 2.1.3(a) if Chiron's sales are worldwide; or if
Chiron's sales are regional, such activities shall replace [CONFIDENTIAL
TREATMENT REQUESTED] of the [CONFIDENTIAL TREATMENT REQUESTED] which Chiron is
permitted to grant under Section 2.1.3 (b), in each region where Chiron sells
such Probe IVD Product directed to HCV. For the avoidance of doubt, it is
understood that Chiron shall have no right to engage directly in sales of IVD
Probe Products directed to HCV in any country in which [CONFIDENTIAL TREATMENT
REQUESTED] (whether global or regional) granted by Chiron under this Section
2.1.3 are in effect.
(d) The limitations with respect to Chiron's ability to
grant licenses under the Chiron HCV/HIV Patents set forth in Sections 2.1.3(a)
and (b) shall be effective from the date of the Stock Purchase Agreement. With
respect to each license which Chiron is permitted to grant under this Section
2.1.3:
(i) Chiron shall have the right to select the
licensee and negotiate the terms of the license in its complete and sole
discretion, except as expressly agreed in this Agreement.
(ii) Chiron shall retain 100% of the proceeds of
any such license.
(iii) Any such additional licenses shall be subject
to the terms set forth in Paragraph 3 of Exhibit A.
(iv) Such additional licenses shall not include the
rights to grant sublicenses, except to Affiliates for so long as they remain
Affiliates of the licensee, and shall contain provisions not less restrictive
than those set forth in Section 2.1.2.
(e) With respect to each of HCV and HIV, Chiron shall not
have the right to grant licenses under the Chiron HCV/HIV Patents for the
research, development, manufacture, use or sale of Probe IVD Products beyond
those permitted under Section 2.1.3(a) or (b) except with the prior written
consent of CDC, which may be granted in CDC's sole discretion. In the event
that a license granted by Chiron pursuant to Section 2.13(a) or (b) is
terminated, Chiron shall have the right to replace such license with a new
license, consistent with the limitations set forth in Section 2.1.3(a) or (b).
(f) Notwithstanding the foregoing, Chiron retains a
non-exclusive right under the Chiron HCV/HIV Patents to conduct research with
respect to Probe IVD Products.
(g) The following provisions shall apply with respect to
third party patents directed to HCV, which are within the scope of Valid Claims
of Chiron HCV/HIV Patents, and Valid Claims of which, but for licenses granted
pursuant to this Section 2.1.3 (g), would be infringed by the manufacture, use
or sale of CDC HCV/HIV Probe Products directed to HCV which being sold or under
development as of the Effective Date ("Third Party HCV Patents").
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(i) If a Third Party HCV Patent is owned or
controlled by a licensee of Chiron pursuant to Section 2.1.3 (a) or (b), Chiron
agrees that it will not acquire a license under such Third Party HCV Patent for
use in Probe IVD Products (but without limiting Chiron's rights to acquire a
license only for use in Blood Screening), unless Chiron [CONFIDENTIAL TREATMENT
REQUESTED].
(ii) If a Third Party HCV Patent is owned by an
entity other than a licensee of Chiron pursuant to Section 2.1.3 (a) or (b), and
if Chiron acquires a license under such Third Party HCV Patent for use in Probe
IVD Products (but without limiting Chiron's right to acquire a license only for
use in Blood Screening), Chiron will [CONFIDENTIAL TREATMENT REQUESTED].
(h) All licenses entered into by Chiron pursuant to this
Section 2.1.3 shall be with parties actively engaged, or reasonably expected to
be actively engaged, in the sale and distribution of Probe IVD Products in the
region or regions covered by the license and the terms thereof shall be
bona-fide commercial terms negotiated at arm's length.
2.2 CHIRON NON-HCV/HIV PATENTS. Subject to the terms and conditions
of this Agreement, and subject to any rights of third parties existing as of the
date of the Stock Purchase Agreement under license agreements listed in Schedule
2.13(j) of the Stock Purchase Agreement, Chiron hereby grants to CDC and its
Affiliates (i) an exclusive worldwide license, under the Chiron Non-HCV/HIV
Patents to research, develop, make, have made, use and sell CDC Non-HCV/HIV
Products and Open Kits; and (ii) a non-exclusive worldwide license, under the
Chiron Non-HCV/HIV Patents to research, develop, make, have made, use and sell
Research Tools. CDC shall have the right to grant sublicenses under such
licenses, except to the extent restricted pursuant to Section 2.5. [CONFIDENTIAL
TREATMENT REQUESTED].
2.3 CDC PATENTS.
(a) Subject to the terms and conditions of this Agreement, CDC
hereby grants to Chiron and its Affiliates an exclusive worldwide license, with
the right to sublicense except to the extent restricted pursuant to Section 2.6,
under the CDC Patents to research, develop, make, have made, use and sell any
and all products for use in Blood Screening.
(b) To the extent any CDC Patents are subject to the exclusive
license to Ortho under the Chiron/Ortho Agreement, CDC hereby grants Chiron an
exclusive worldwide license, with right to sublicense, except to the extent
restricted pursuant to Section 2.6, under such CDC Patents, to research,
develop, make, have made, use and sell any and all products subject to the
Chiron/Ortho Agreement.
(c) CDC hereby grants to Chiron a non-exclusive worldwide
license under the CDC Patents, (i) to research, develop, make, have made, use
and sell any and all Vaccine/Therapeutic Products and Informatics Products, with
the right to sublicense except to the extent restricted pursuant to Section 2.6;
and (ii) subject to the Non-Competition Agreement, to
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conduct internally or for or with third parties, research of all types and for
all purposes, whether internal, collaborative, commercial, or non-commercial.
(d) CDC hereby grants to Chiron a non-exclusive, worldwide
license under the CDC Patents, to research, develop, make, have made, use and
sell any and all Therametrics Products, with the right to sublicense except to
the extent restricted pursuant to Section 2.6, and subject to the following.
Chiron hereby grants to CDC the option to manufacture and supply on an exclusive
basis and on commercially reasonable terms, any IVD Product which is a component
of a Therametrics Product, if the manufacture, use or sale of such IVD Product
would, but for the license granted hereunder, infringe a Valid Claim of a CDC
Patent. Such option shall be exercisable by CDC on written notice to Chiron
within [CONFIDENTIAL TREATMENT REQUESTED] following receipt by CDC of written
notice from Chiron describing the IVD Product in question. If CDC exercises
such option, the parties shall negotiate in good faith a supply agreement on
reasonable commercial terms. Any terms which cannot be agreed upon within
[CONFIDENTIAL TREATMENT REQUESTED] after exercise of the option shall be
submitted for resolution under Article 10. If CDC fails to exercise the option,
Chiron shall be free to manufacture or have manufactured and sell the IVD
Product pursuant to the license granted herein.
(e) [CONFIDENTIAL TREATMENT REQUESTED]. For avoidance of
doubt, this Section 2.3 (e) shall not apply to any supply agreement pursuant to
Section 2.3(d).
2.4 OPTION FOR RESEARCH TOOLS. CDC hereby grants to Chiron an option
to obtain one or more non-exclusive licenses, on commercially reasonable terms
and royalty rates to be negotiated in good faith, under the CDC Patents, to
make, have made, use and sell Research Tools. Such option shall be exercised by
Chiron on a Research Tool by Research Tool basis.
2.5 CHIRON SUBLICENSABLE PATENTS.
2.5.1 [CONFIDENTIAL TREATMENT REQUESTED] following the Effective
Date, Chiron shall grant sublicenses to CDC under any or all of the Chiron
Sublicensable Patents, as requested by CDC by its giving written notice thereof
to Chiron. Such sublicenses shall have the same scope and be subject to the
same terms and conditions as set forth in Section 2.1, in the case of Chiron
Sublicensable Patents claiming HCV or HIV; and shall have the same scope and be
subject to the same terms and conditions as set forth in Section 2.2, in the
case of other Chiron Sublicensable Patents, in each case to the extent permitted
under the terms of the underlying third party license. [CONFIDENTIAL TREATMENT
REQUESTED] following the Effective Date, Chiron shall not grant any sublicenses
to third parties under the Chiron Sublicensable Patents which would preclude
Chiron from granting the rights to CDC set forth above. Following [CONFIDENTIAL
TREATMENT REQUESTED], Chiron shall be free to grant any sublicenses under the
Chiron Sublicensable Patents to third parties under any terms and conditions,
including the granting of exclusive sublicenses. In the event that CDC requests
such a sublicense [CONFIDENTIAL TREATMENT REQUESTED] the Effective Date, Chiron
will grant such sublicense, subject to any and all intervening rights of third
parties, to the extent Chiron is then permitted to do so.
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2.5.2 All sublicenses granted to CDC hereunder shall be subject
to all of the terms and conditions of the underlying third party license
agreements; including without limitation all royalty and other payment
obligations to the third party licensor; provided that CDC shall be subject to
such obligations only from the time of the grant of such sublicense to CDC but
only to the extent attributable solely to sales of licensed products by CDC, its
Authorized Distributors, or, to the extent permitted hereunder, its Affiliates
and sublicensees, under such sublicenses; and further PROVIDED that
[CONFIDENTIAL TREATMENT REQUESTED] shall be due Chiron (as opposed to a third
party licensor) with respect to any such sublicenses. Upon its election to
receive a sublicense, CDC shall be obligated to perform the obligations of a
licensee under the underlying third party license with respect to its activities
as a sublicensee. CDC shall pay Chiron all amounts owing to the third party
licensor with respect to CDC's activities in sufficient time for Chiron to meet
its payment requirements to the third-party licensors. If required under the
third-party license, the parties shall execute any documentation necessary to
give effect to such sublicense. CDC and its Affiliates shall indemnify and
defend Chiron against any loss or claim resulting from a breach of an underlying
license relating to Chiron Sublicensable Patents based on the acts or omissions
of CDC or its Affiliates, Authorized Distributors or permitted sublicensees.
2.6 CDC SUBLICENSABLE PATENTS.
2.6.1 [CONFIDENTIAL TREATMENT REQUESTED] following the Effective
Date, CDC shall grant sublicenses to Chiron under any or all of the CDC
Sublicensable Patents as requested by Chiron by its giving written notice
thereof to CDC. Such sublicenses shall have the same scope and be subject to
the same terms and conditions as set forth in Section 2.3, to the extent
permitted under the terms of the underlying third party license. [CONFIDENTIAL
TREATMENT REQUESTED] following the Effective Date, CDC shall not grant any
sublicenses under the CDC Sublicensable Patents which would preclude CDC from
granting to Chiron the rights set forth above. Following [CONFIDENTIAL
TREATMENT REQUESTED], CDC shall be free to grant any sublicenses under the CDC
Sublicensable Patents to third parties under any terms and conditions, including
the granting of exclusive sublicenses. In the event that Chiron requests such a
sublicense [CONFIDENTIAL TREATMENT REQUESTED] the Effective Date, CDC will grant
such sublicense, subject to any and all intervening rights of third parties, to
the extent CDC is then permitted to do so.
2.6.2 All sublicenses granted to Chiron hereunder shall be
subject to all of the terms and conditions of the underlying third party license
agreements, including without limitation all royalty and other payment
obligations to the third party licensor, provided that Chiron shall be subject
to such obligations only from the time of the grant of such sublicense to Chiron
but only to the extent attributable solely to sales of licensed products by
Chiron, or its Affiliates or sublicensees, under such sublicenses; PROVIDED
further that [CONFIDENTIAL TREATMENT REQUESTED] shall be due CDC (as opposed to
a third party licensor) with respect to any such sublicenses. Upon its election
to receive a sublicense, Chiron shall be obligated to perform the obligations of
licensee under such underlying third party license with respect to its
activities as sublicensee. Chiron shall pay to CDC all amounts owing to the
third party licensor with respect to Chiron's activities in sufficient time for
CDC to meet its payment requirements to the third-party licensors. If required
under the third party license, the parties shall execute any documentation
necessary to give effect to such sublicense. Chiron shall indemnify and defend
CDC against any loss or claim resulting from a
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breach of an underlying license relating to CDC Sublicensable Patents based on
the acts or omissions of Chiron, its Affiliates or permitted sublicensees.
2.7 KNOW-HOW.
(a) Recognizing the difficulty in segregating unpatented
information transferred to CDC from that which remains with Chiron, (i) CDC
hereby grants to Chiron a perpetual, irrevocable, non-exclusive, royalty-free
license under CDC Know-How, for any and all purposes, with right to sublicense
and to transfer; and (ii) Chiron hereby grants to CDC a perpetual, irrevocable,
non-exclusive, royalty-free license under the Chiron IVD Know-How for all
purposes, with right to sublicense and to transfer. Chiron and CDC each agree
to use the same degree of care with respect to disclosure of Chiron IVD Know-How
and CDC Know-How as such party uses with respect to other Know-How owned by it.
CDC Know-How and Chiron IVD Know-How shall not be deemed Information received
from the other party for purposes of Article 8.
(b) Notwithstanding the foregoing, the parties acknowledge that
title to CDC Know-How existing as of the Effective Date which is subject to the
exclusive license to Ortho under the Chiron/Ortho Agreement has been transferred
to Chiron under the Asset Transfer Agreement as part of the Excluded
Hepatitis/Retrovirus Patents and Know-How. Any such know-how which remains in
the possession of CDC shall remain subject to such exclusive license to Ortho.
2.8 RETAINED INTERESTS. Each party retains all right, title and
interest in and to all of its patents, patent applications, know-how and other
intellectual property except to the extent expressly granted to the other party,
under this Agreement, the Stock Purchase Agreement or the Ancillary Agreements.
For the avoidance of doubt, Chiron grants no rights or interests to CDC or its
Affiliates in or to any patents, patent applications, Know-How or other
intellectual property ("Chiron Intellectual Property"), except Chiron
Intellectual Property which is related to the continued conduct of the Business,
including Chiron Intellectual Property that covers Products or Products in
Development, but excluding Chiron Intellectual Property which does not cover
Products or Products in Development and may cover Future Products.
3. ROYALTIES, FEES AND RECORDS
3.1 CDC HCV/HIV PROBE PRODUCTS. In addition to any amounts payable
pursuant to Section 2.5, if any, CDC and its Affiliates agree to make payments
to Chiron as set forth in Exhibit A. Exhibit A also sets forth the manner in
which such compensation may be adjusted.
3.2 LICENSES UNDER CHIRON NON-HCV/HIV PATENTS, CDC PATENTS, CDC
KNOW-HOW, CHIRON IVD KNOW-HOW. [CONFIDENTIAL TREATMENT REQUESTED] with respect
to the licenses granted under Sections 2.2, 2.3 or 2.7, except those payable
pursuant to Section 2.5 or 2.6, if any.
3.3 LICENSE FEE. Conditioned upon the occurrence of the Closing under
the Stock Purchase Agreement, CDC hereby agrees to pay Chiron a license fee of
[CONFIDENTIAL TREATMENT REQUESTED] payable on the Effective Date. CDC shall be
entitled to a refund of the portion of such license fee which has not then
become non-refundable, in accordance with the
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schedule set forth below, in the event that CDC elects to terminate all, but not
less than all, licenses granted to it under this Agreement (a "CDC
Termination"). The portions of the license fee which are non-refundable shall
increase over time, as follows, and between anniversaries of the Effective Date,
shall increase ratably to the levels set forth below.
DATE OF CDC TERMINATION NON-REFUNDABLE PORTION OF
LICENSE FEE
On Effective Date [CONFIDENTIAL TREATMENT
REQUESTED]
One year after Effective Date [CONFIDENTIAL TREATMENT
REQUESTED]
Two years after Effective Date [CONFIDENTIAL TREATMENT
REQUESTED]
Three years after Effective Date [CONFIDENTIAL TREATMENT
REQUESTED]
3.4 RECORDS AND REPORTS. CDC shall keep complete and accurate records
of the sale by it, its Affiliates, and permitted sublicensees of products
subject to Earned Royalties or Minimum Royalties (each as defined in Exhibit A)
pursuant to Exhibit A, and the sublicensed party shall keep complete and
accurate records of the sale of products for which royalties are payable under
Section 2.5 or 2.6, as the case may be. Within 60 days following the end of
each calendar quarter commencing with the first full or partial calendar quarter
following the Effective Date, CDC shall deliver to Chiron a written report for
such period setting forth, for each country to the extent relevant, the Net
Sales of products subject to Earned Royalties or Minimum Royalties under Exhibit
A and, with respect to products subject to Minimum Royalties under Exhibit A,
the number of Units of each type of such products sold, which report shall also
set forth the amounts payable pursuant to Exhibit A, and the calculation of such
amounts, for such period. Each party shall deliver to the other such reports as
are required pursuant to Section 2.5 or 2.6, as the case may be.
3.5 AUDIT.
(a) Chiron shall have the right to audit the records of CDC, its
Affiliates, and permitted sublicensees using an independent certified public
accounting firm reasonably acceptable to CDC, during reasonable business hours
and on reasonable notice but not more than once per calendar year, solely for
the purpose of verifying the earned Royalties and Minimum Royalties payable
pursuant to this Agreement for the twelve (12) full quarters immediately
preceding the date of the audit, provided that such accountants agree to keep
all information received strictly confidential and agree to provide to Chiron
only the information necessary to verify the calculation of amounts due
hereunder.
(b) If any such audit discloses an underpayment of [CONFIDENTIAL
TREATMENT REQUESTED] or more for the period of such audit, which shall be at
least four (4) full quarters in length, CDC shall bear the costs of such audit.
Otherwise such audit shall be at the expense of Chiron. Underpayments resulting
from withholding taxes pursuant to Section 4.3 or currency controls pursuant to
Section 4.5 shall not be deemed underpayments for the purposes of this Section
3.5 (b).
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4. PAYMENT
4.1 QUARTERLY PAYMENT. Payments shall be made as provided in Exhibit
A, except that any payments required pursuant to Sections 2.5 or 2.6 shall be
made in accordance with the applicable third party license agreement.
4.2 PAYMENT METHOD; DEFAULT INTEREST. All payments under this
Agreement shall be made by bank wire transfer to the bank account designated in
writing by the party receiving the royalty payments. Any late payments shall
bear interest at the lesser of (i) [CONFIDENTIAL TREATMENT REQUESTED] rate as
published in the Wall Street Journal as of the date payment is due; or (ii) the
maximum rate permitted by applicable law.
4.3 WITHHOLDING TAX. Except as otherwise required under Section 2.5
or 2.6, where required to do so by applicable law or treaty, the royalty-paying
party shall withhold taxes required to be paid to a taxing authority on account
of such income to the payee, and the royalty-paying party shall furnish the
payee with satisfactory evidence of such withholding and payment in order to
permit the payee to obtain a tax credit or other relief as may be available
under the applicable law or treaty. The royalty-paying party shall cooperate
with the payee in obtaining exemption from withholding taxes where available
under applicable laws and treaties.
4.4 CURRENCY. All payments shall be in U.S. Dollars and shall be made
on the dates set forth herein. The Net Sales amount calculated hereunder for
sales in countries other than the United States shall be converted into
equivalent United States Dollars in accordance with the methods used for
internal financial reporting purposes within Purchaser, unless otherwise
required pursuant to Section 2.5 or 2.6.
4.5 CURRENCY CONTROLS. If, by law, regulations, or fiscal policy of a
particular country, payment as provided for above is restricted or forbidden,
notice thereof in writing will be given to the payee and payment of the royalty
will be made through such lawful means or methods as the payee designates. If
the payee fails to so designate such lawful means or methods within 60 days
after such notice is given to the payee, the payment of royalties by the
royalty-paying party will be made by the deposit thereof in local currency to
the credit of the payee in a recognized banking institution designated by the
payee or, if none be designated by the payee within such period of 60 days, in a
recognized banking institution of which the royalty-paying party shall notify
the payee.
5. REPRESENTATIONS AND WARRANTIES
5.1 EXCEPT AS SPECIFICALLY SET FORTH IN THE STOCK PURCHASE AGREEMENT,
NO PARTY MAKES ANY REPRESENTATION OR WARRANTIES, EITHER EXPRESS OR IMPLIED,
ARISING BY LAW OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL ANY
PARTY LICENSING TECHNOLOGY TO THE OTHER PARTY HAVE, AS A RESULT OF SUCH LICENSE,
ANY OBLIGATION OR LIABILITY FOR LOSS OF REVENUE OR PROFIT, OR FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES.
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In particular, with no limitation implied, nothing in this Agreement will
be construed as:
(i) A warranty or representation as to the validity or scope of any of
the Licensed Chiron Patents or the CDC Patents;
(ii) A warranty or representation that anything made, used, sold, or
otherwise disposed of under the licenses granted in this Agreement
is or will be free from infringement of patents of third parties;
(iii) An obligation to bring or prosecute actions or suits against third
parties for infringement, except as set forth in Section 6.4;
(iv) Except as otherwise provided in the Stock Purchase Agreement or
the Ancillary Agreements, conferring the right to use in
advertising, publicity, or otherwise any trademark, trade name, or
any contraction, abbreviation, simulation, or adaptation thereof,
of another party; or
(v) Except to the extent expressly provided in Article 2 hereof,
conferring by implication, estoppel, or otherwise any license or
rights under any patents or other proprietary rights of Chiron,
CDC or their respective Affiliates.
6. PATENT MATTERS
6.1 PATENT PROSECUTION. Each party shall be responsible, at its sole
expense and in its sole discretion, for the filing, prosecution, maintenance,
defense and enforcement of patents owned by it.
6.2 EXCHANGE OF INFORMATION. The parties shall keep each other
currently advised in writing of any substantial changes in the status of their
respective patent rights which are licensed hereunder, including but not limited
to notice of the issuance of patents on pending patent applications included
therein, reexaminations, reissues, and interferences and oppositions, and
provide further updates on the status of such patent rights at the request of
the other party. The parties need not disclose information subject to
attorney-client privilege.
6.3 INFRINGEMENT OF THIRD PARTY PATENT RIGHTS. CDC shall promptly
notify Chiron in the event that it becomes aware of any claim alleging that the
manufacture, use or sale of any CDC HCV/HIV Probe Product infringes any third
party patent or intellectual property rights. Chiron shall promptly notify CDC
in the event that it becomes aware of any claim alleging that the manufacture,
use or sale of any Licensed Chiron Product utilizing any CDC Patents relating to
bDNA infringes any third party patent or intellectual property right. Pursuant
to Section 9.1, the party manufacturing or selling the product in question (the
"Product Owning Party") shall be responsible for the defense of such claim, at
its sole cost, except as provided herein. Chiron, in its sole discretion, shall
have the exclusive right (but not the obligation) to assume and
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solely manage the defense of any such claim, at Chiron's expense, to the extent
that such claim relates to specific HCV or HIV nucleotide sequences, or the
defense of such claim relates to activities or intellectual property of Chiron.
CDC shall have the exclusive right (but not the obligation) to assume and solely
manage the defense of any such claim, at CDC's expense, to the extent such claim
relates to bDNA technology, or the defense of such claim relates to activities
or intellectual property of CDC. If the other party elects to exercise such
right with respect to any such defense, the Product Owning Party shall take all
appropriate and necessary actions to assist the other party in such defense. If
the other party elects not to assume control of such defense, the Product
Owning Party shall nonetheless keep the other party fully and promptly informed
with respect thereto, including provision of notice of all discovery relating to
the other party's activities or intellectual property, and copies of all
documents and deposition records with respect thereto. Nothing in Section 6.3
shall limit in any way the Product Owning Party's obligations under Section 9.1
with respect to such claim, including without limitation the Product Owning
Party's obligation to indemnify the other party and the other party's Affiliates
against any damages or other liabilities arising from any such action.
6.4 INFRINGEMENT BY THIRD PARTIES.
6.4.1 Each party shall notify the other if it becomes aware of
infringement by third parties of any patent rights licensed hereunder, (other
than Chiron Sublicensable Patents or CDC Sublicensable Patents) if such
infringement is within the field of uses licensed to such party under this
Agreement. The patent owning party shall have the exclusive right to take
action against such infringement in its sole discretion, subject to this Section
6.4.
6.4.2 In the event that a third party is engaged in the sale of
Probe IVD Products which infringe the Chiron HCV/HIV Patents (other than a
Chiron Sublicensable Patent), the parties shall meet and confer, and negotiate
in good faith regarding patent enforcement or licensing strategy, recognizing
that (i) Chiron will control any litigation with respect to such patent
enforcement, and (ii) that each party will have an interest in any settlement of
such infringement involving a license under the Chiron HCV/HIV Patents which is
not specifically authorized under Section 2.1.1 or 2.1.3.
In general, the parties intend to utilize licensing solutions to
the extent such licenses can be structured to fairly protect the economic
interests of the parties. If, however, the parties agree to pursue legal
action, the parties shall also agree upon a reasonable allocation of both
litigation costs and recoveries.
6.4.3 In the event that (i) the parties fail to reach agreement
pursuant to Section 6.4.2; and (ii) the infringing product sold by the third
party in a country is "substantially competitive" with a CDC HCV/HIV Probe
Product directed to HCV which is then sold by CDC, a CDC Affiliate, an
Authorized Distributor or a CDC sublicensee in the same country (an "Affected
CDC Product"); and (iii) CDC has notified Chiron pursuant to Section 6.4.1 of an
Affected CDC Product in [CONFIDENTIAL TREATMENT REQUESTED] (the "6.4.1.Notice"),
then the provisions of this Section 6.4.3 shall apply. For this purpose, a
third party infringing product shall be considered "substantially competitive"
in a country if it achieves a market share in at least [CONFIDENTIAL TREATMENT
REQUESTED] of the market for Probe IVD Products directed to HCV in such country.
For this purpose, "Major Country" shall mean the United States, Germany, the
United Kingdom or Japan.
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(a) If either (i) the 6.4.1 Notice identified an
Affected CDC Product in the United States, and Chiron fails to institute
legal action in the United States within [CONFIDENTIAL TREATMENT REQUESTED]
following receipt by Chiron of the 6.4.1 Notice and the infringement is not
otherwise abated, or (ii) the 6.4.1 Notice identified an Affected CDC Product
in a Major Country other than the United States, and Chiron fails to
institute legal action against the infringing party in at least one of the
United States, The Netherlands, Germany, the United Kingdom or Japan, within
[CONFIDENTIAL TREATMENT REQUESTED] following receipt by Chiron of the 6.4.1.
Notice, and the infringement is not otherwise abated; then CDC or its
sublicensee shall be relieved of the obligation to pay that portion of Earned
Royalties set forth in Section 6.4.3(b), and [CONFIDENTIAL TREATMENT REQUESTED],
with respect to Affected CDC Products until such time as Chiron institutes such
legal action as described in this Section 6.4.3 (a).
(b) If Chiron has not instituted such legal action at the
end of such [CONFIDENTIAL TREATMENT REQUESTED] period and the infringement is
not otherwise abated, the Earned Royalties with respect to the Affected CDC
Products shall be reduced by [CONFIDENTIAL TREATMENT REQUESTED]. If, at the end
of each [CONFIDENTIAL TREATMENT REQUESTED] thereafter, Chiron has not instituted
such legal action and the infringement is not otherwise abated, such Earned
Royalties shall be reduced by an additional [CONFIDENTIAL TREATMENT REQUESTED]
of the original Earned Royalties, such that if the legal action has not
commenced and the infringement is not otherwise abated by the end of the
[CONFIDENTIAL TREATMENT REQUESTED] from receipt by Chiron of the 6.4.1 Notice,
[CONFIDENTIAL TREATMENT REQUESTED] shall be payable hereunder with respect to
the Affected CDC Products.
(c) The obligations to pay Earned Royalties and Minimum
Royalties shall be reinstated on a prospective basis at such time as CDC
receives written notice of the institution of legal action in accordance with
Section 6.4.3 (a) or the infringement is otherwise abated, all subject to
Section 6.4.3 (d).
(d) If legal action as described in Section 6.4.3 (a) has
not been instituted and the infringement is not otherwise abated for more than
[CONFIDENTIAL TREATMENT REQUESTED] following receipt by Chiron of the 6.4.1
Notice, and if, as a result of the infringement, sales of the Affected CDC
Product in a Major Country by CDC, its Affiliate, sublicensee or Authorized
Distributor have declined by [CONFIDENTIAL TREATMENT REQUESTED] or more during
the preceding [CONFIDENTIAL TREATMENT REQUESTED] period, then upon reinstatement
of Earned Royalties and Minimum Royalties pursuant to Section 6.4.3 (c), the
parties shall meet and confer regarding possible adjustments to the Earned
Royalties and Minimum Royalties for the Affected CDC Product in view of such
degradation of the market. The parties will discuss possible rate reductions,
as well as a plan for reinstating the original economic expectations of the
parties. It is expected that any agreed upon reduction of Earned Royalties or
Minimum Royalties will be phased out over time, so as to return to the Earned
Royalties and Minimum Royalties set forth in Exhibit A. If the parties fail to
reach agreement on any such adjustment, the matter shall be submitted for
resolution pursuant to Article 10, except that in the event of arbitration, each
party shall submit to the neutral a proposal with respect to adjustments
pursuant to this Section 6.4.3(d). The neutral shall be empowered to choose
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one proposal or the other, but shall not be empowered to order any such
adjustment other than as proposed by one of the parties.
6.4.4 CDC and its sublicensees shall cooperate with Chiron in
connection with any legal action brought hereunder. Any recovery by Chiron in
any such legal action shall first be applied to reimburse all costs incurred by
Chiron or CDC in connection with such action, and the remainder shall be
allocated between the parties as agreed pursuant to Section 6.4.2; or, if no
agreement has been reached, the remainder shall be retained by Chiron.
7. TERM, TERMINATION
7.1 TERM. This Agreement shall be effective as of the Effective Date,
and shall remain in force until the expiration of the last to expire of the
Licensed Chiron Patents and the CDC Patents (provided, however, that no
royalties shall be payable only with respect to CDC HCV/HIV Probe Products
unless the manufacture, use or sale of which would, in the absence of a license,
constitute an infringement of a Valid Claim of Chiron HCV/HIV Patents).
7.2 EARLY TERMINATION. Either party may terminate the licenses
granted hereunder to the other party, without affecting the licenses granted to
the terminating party, in the following events:
(a) If the other party materially breaches this Agreement and
has failed to cure or demonstrate the nonexistence of the breach within 60 days
after receipt of a written notice and demand to cure such breach; or
(b) If the other party files in any court or agency pursuant
to any bankruptcy or insolvency law a petition in bankruptcy or insolvency or
for reorganization or similar arrangement or for the appointment of a
receiver or trustee of such party or its assets; if the other party is served
with an involuntary petition against it in any insolvency proceeding, upon
the ninety-first (91st) day after such service if such involuntary petition
has not previously been stayed or dismissed; or if the other party makes an
assignment for the benefit of its creditors. All licenses granted under or
pursuant to this Agreement are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101(52) of the U.S.
Bankruptcy Code. The parties agree that the licensee of such rights under
this Agreement shall retain and may fully exercise all of its rights and
elections under the U.S. Bankruptcy Code, subject to performance by such
licensee of its preexisting obligations under this Agreement.
7.3 VOLUNTARY TERMINATION. CDC shall have the right to voluntarily
terminate all, but not less than all, rights and licenses granted to CDC or its
Affiliates under this Agreement, during the three years following the Effective
Date, on not less than six months prior written notice to Chiron. No such
termination shall affect any rights or licenses granted to Chiron or its
Affiliates hereunder.
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7.4 SURVIVAL. The following provisions of this Agreement shall
survive expiration or termination of this Agreement, together with all
obligations accrued prior to such expiration or termination: Article 1, Section
2.8, Section 3.4, Section 3.5, Section 5.1, Section 6.3, any agreement reached
pursuant to Section 6.4.2, this Section 7.4, Article 8, Article 9, and Article
10.
8. CONFIDENTIAL INFORMATION
From time to time during the term of this Agreement, Chiron and CDC may
provide to each other information concerning patents, patent applications,
license agreements and other confidential or proprietary information related to
this Agreement (the "Information"). Each party receiving the Information (the
"Receiving Party") shall during the term of this Agreement and for a period of
three years after termination hereof: (i) maintain the Information in
confidence, (ii) not disclose the Information to any third party, other than
employees, agents or consultants of the Receiving Party or its Affiliates or
sublicensees who have a need to know the Information and who are bound by
confidentiality obligations to the Receiving Party not less restrictive than
those contained herein and (iii) not use the Information for any purpose not
directly related to performance or otherwise authorized under this Agreement.
The obligations of this Article 8 shall not apply to any Information which is or
which becomes generally known to the public by publication or by means other
than a breach of a duty by the Receiving Party; or which is otherwise known by
the Receiving Party at the time of disclosure by the other party; or which
otherwise becomes available to the Receiving Party from a third party not in
breach of confidentiality obligations to the other party; or which is developed
by the Receiving Party independent of any disclosure from the other party. The
Receiving Party shall also be permitted to make disclosures of Information which
are reasonably necessary in connection with a possible grant of a permitted
sublicense by the Receiving Party or in due diligence related to a possible
acquisition, merger, consolidation, substantial asset transfer, or similar
transaction of the Receiving Party, provided that the recipient is bound to the
Receiving Party by confidentiality obligations with respect to the Confidential
Information no less restrictive than those set forth herein. Nothing herein
shall prevent the Receiving Party from making such disclosures of Information as
are reasonably required by law, regulation, or order of any court or
governmental agency, provided that the Receiving Party has provided reasonable
advance notice to allow the disclosing party the opportunity to seek a
protective order or otherwise contest, prevent or limit such disclosure. Upon
termination of this Agreement for any reason, the Receiving Party shall return,
or at the option of the disclosing party, certify destruction of, all
Information and copies thereof; provided that the Receiving Party may retain one
copy thereof in its law department files solely for evidentiary and regulatory
purposes.
9. INDEMNIFICATION
9.1 MUTUAL INDEMNITIES. Chiron shall indemnify, defend and hold
harmless CDC and its Affiliates and their officers, directors, shareholders,
employees, representatives and agents, against any claim, demand, loss, damage
or injury, including reasonable attorneys' fees, arising from, relating to, or
otherwise in respect of the manufacture, use or sale of Licensed Chiron
Products, provided, however, that such indemnity shall not extend to damages
arising directly from any breach or willful or negligent act of CDC or its
Affiliates. CDC shall indemnify, defend and hold harmless Chiron and its
Affiliates and their officers, directors, shareholders, employees,
representatives and agents, against any claim, demand, loss, damage or injury,
including reasonable
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attorneys' fees, arising from, relating to or otherwise in respect of the
manufacture, use or sale of Licensed CDC Products, provided, however, that such
indemnity shall not extend to damages arising directly from any breach or
willful or negligent act of Chiron or its Affiliates.
9.2 INDEMNIFICATION PROCEDURES. A party claiming indemnification
pursuant to Section 9.1 (the "indemnified party") shall promptly notify the
other party (the "indemnifying party") in writing upon becoming aware of any
claim to which such indemnification may apply. Delay in providing such notice
shall constitute a waiver of the indemnifying party's indemnity obligations
hereunder if, and only if, the indemnifying party's ability to defend such claim
is materially impaired thereby. The indemnifying party shall have the right to
assume and control the defense of the claim at its own expense. If the right to
assume and have sole control of the defense is exercised, the indemnified party
shall have the right to participate in, but not to control, such defense at its
own expense, and the indemnifying party's indemnity obligations shall be deemed
not to include attorneys' fees and litigation expenses incurred by indemnified
party after the assumption of the defense by indemnifying party. If the
indemnifying party does not assume the defense of the claim, the indemnified
party may defend the claim at the indemnifying party's expense. The indemnified
party will not settle or compromise the claim without the prior written consent
of indemnifying party, and the indemnifying party will not settle or compromise
the claim in any manner which would have an adverse effect on the indemnified
party without the consent of the indemnified party, which consent, in each case,
will not be unreasonably withheld. The indemnified party shall reasonably
cooperate with the indemnifying party and will make available to indemnifying
party all pertinent information under the control of the indemnified party, all
at the expense of the indemnifying party.
10. ALTERNATIVE DISPUTE RESOLUTION
10.1 The parties recognize that bona fide disputes as to certain
matters may arise from time to time. In the event of the occurrence of such a
dispute, either party may, by written notice to the other party, have such
dispute referred to the respective Presidents of Chiron and CDC or their
successors, for attempted resolution by good faith negotiations within 30 days
after such notice is received. In the event that such designated officers are
not able to resolve the referred dispute within the 30-day period, either party
may invoke the provisions of Section 10.2.
10.2 Any dispute, controversy or claim arising out of or relating to
the validity, construction, enforceability or performance of this Agreement
shall be settled by binding Alternative Dispute Resolution ("ADR") in the manner
described below:
10.2.1 If a party intends to begin an ADR to resolve a dispute,
that party shall provide written notice (the "ADR Request") to counsel for the
other party informing the other party of its intention and the issues to be
resolved. From the date of the ADR Request and until such time as any matter
has been finally settled by ADR, the running of the time periods contained in
Section 7.2 as to which a party must cure a breach of this Agreement shall be
suspended as to the subject matter of the dispute.
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10.2.2 Within 10 business days after the receipt of the ADR
Request, the other party may, by written notice to the counsel for the party
initiating ADR, add additional issues to be resolved. Within 20 business days
following the receipt of the ADR Request a neutral shall be selected by the
then-President of the Center for Public Resources ("CPR"), 680 Fifth Ave., New
York, New York 10019. The neutral shall be an individual who shall preside in
resolution of any disputes between the parties. The neutral selected shall be a
member of the Judicial Panel of the CPR and shall not be an employee, director
or shareholder of any party or of an Affiliate of any party and shall agree to
comply with the time deadlines imposed by this Section 10.2 and such extension
of times as the parties may agree upon. Any party shall have 10 business days
from the date the neutral is selected to object in good faith to the selection
of that person. If any party makes such an objection, the then-President of the
CPR shall, as soon as possible thereafter, elect another neutral under the same
conditions set forth above. This second selection shall be final.
10.2.3 No later than 90 business days after selection, the neutral
shall hold a hearing to resolve each of the issues identified by the parties and
shall render the award as expeditiously thereafter as possible but in no event
more than 60 days after the close of hearings, except in an extraordinary
situation where such time limitation would deprive either party of procedural
due process. In making the award the neutral shall rule on each disputed issue
and shall adopt in whole or in part the proposed ruling of one of the parties on
each disputed issue. Such ruling and award shall be in writing, and shall set
forth the reasons therefor.
10.2.4 The parties intend that discovery, although permitted as
described below, will be limited except in exceptional circumstances, as
determined by the neutral. The neutral shall permit limited discovery as
necessary for an understanding of any legitimate issue raised in the ADR,
including the production of documents. Each party shall be permitted but not
required to take the deposition of not more than five persons, and each such
deposition shall not exceed six hours in length. If the neutral believes that
exceptional circumstances exist, and additional discovery is necessary for a
full and fair resolution of the issues, additional discovery as the neutral
deems necessary may be ordered. At the hearing the parties may present
testimony (either by live witness or deposition) and documentary evidence. The
hearing shall be held at such place as is agreed upon by the parties or if they
are unable to agree at a place designated by the neutral. Each party shall have
the right to be represented by counsel. The neutral shall have sole discretion
with regard to the admissibility of any evidence and all other matters relating
to the conduct of the hearing. The neutral shall in rendering a decision, apply
the substantive law of New York without giving effect to any rules or laws
relating to arbitration, and shall attempt to resolve any dispute based upon the
terms of this Agreement as written. The decision of the neutral shall be final
and not appealable, except in cases of fraud or bad faith on the part of the
neutral or any party to the ADR proceeding in connection with the conduct of
such proceedings.
10.2.5 At least 15 business days prior to the date set for the
hearing, each party shall submit to the other party and the neutral a list of
all documents on which the party intends to rely in any oral or written
presentation to the neutral and a list of all witnesses, if any, the party
intends to call at the hearing together with a brief summary of each witness'
expected testimony. At least five business days prior to the hearing, each
party must submit to the neutral and serve on the other party a proposed ruling
on each issue to be resolved. The document containing the proposed rulings
shall be limited to the proposed rulings, and shall contain no argument or
analysis of the facts or issues,
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and shall be limited to not more than 50 pages. No more than five business
days following the close of hearings, the parties may each submit post hearing
briefs to the neutral addressing the evidence and issues to be resolved. The
post-hearing briefs shall not be more than 30 pages.
10.3 The neutral shall determine the proportion in which the parties
shall pay the costs and fees of the ADR. Unless otherwise determined by the
neutral, each party shall pay its own costs (including, without limitation,
attorneys' fees) and expenses in connection with such ADR.
10.4 The ADR proceeding shall be confidential, and the neutral shall
issue appropriate protective orders to safeguard each parties' Information.
Except as required by law, no party shall make (or instruct the neutral to make)
any public announcement with respect to the proceedings or decision of the
neutral without the prior written consent of each other party. The existence of
any dispute submitted to ADR, and the award of the neutral, shall be kept in
confidence by the parties and the neutral, except as required in connection with
the enforcement of such award or as otherwise required by applicable law.
10.5 Any judgment upon the award rendered by the neutral may be entered
in any court having jurisdiction thereof.
10.6 Nothing in this Article 10 shall be deemed to preclude a party
from bringing suit against the other party in a court of competent jurisdiction
to enforce, or enjoin infringement of, such party's intellectual property
rights.
11. MISCELLANEOUS
11.1 PROVISIONS CONTRARY TO LAW. In performing this Agreement, the
parties shall comply with all applicable laws. Nothing in this Agreement shall
be construed so as to require the violation of any law, and wherever there is
any conflict between any provision of this Agreement and any law the law shall
prevail, but in such event the affected provision of this Agreement shall be
adjusted only to the extent necessary to bring it within the applicable law,
provided that such adjustment shall be consistent with the intent of the
parties, as evidenced by this Agreement as a whole.
11.2 NOTICES. Any notice, report, demand or other communication
required or permitted to be given under this Agreement shall be in writing in
English, and shall be delivered by hand or sent by prepaid telex, cable or
telecopy or sent, postage prepaid, by registered, certified or express mail with
return receipt requested, or reputable overnight courier service and shall be
deemed given when so delivered by hand, telexed, cabled or telecopied or, if
mailed, on the date shown on the return receipt, as follows (unless changed by
notice so given):
(i) For Chiron:
Chiron Corporation
4560 Horton Street
Emeryville, California
U.S.A.
Telefax: (510) 923-3177
Attn: President
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cc: General Counsel
Telefax: (510) 654-5360
(ii) For CDC:
Chiron Diagnostics Corporation
333 Coney Street
East Walpole, Massachusetts 02032-1597
Telefax: (508) 660-8100
Attn: President
in each case, with a copy to Purchaser:
Bayer Corporation
Business Group Diagnostics
511 Benedict Avenue
Tarrytown, New York 10591-5097
Telefax: (914) 524-3594
Attn: Division Counsel
11.3 FORCE MAJEURE. Neither party to this Agreement shall be liable
for delay or failure in the performance of any of its obligations, other than an
obligation to make payments to the other party hereunder, if such delay or
failure is due to causes beyond its reasonable control, including, without
limitation, acts of God, fires, earthquakes, strikes and labor disputes, acts of
war, civil unrest or intervention of any governmental authority, but any such
delay or failure shall be remedied by such party as soon as is reasonably
possible.
11.4 USE OF NAMES. Except as provided in the Stock Purchase Agreement
and the other Ancillary Agreements, no party shall use the name of the other in
any promotional communications or advertising, without the prior written consent
of the party whose name is used.
11.5 ASSIGNMENT
11.5.1 Chiron may assign its rights as a licensee of any CDC
Patent or CDC Know-How under this Agreement to any Affiliate of Chiron or any
successor in interest to all or substantially all of that part of Chiron's
business to which such CDC Patent or CDC Know-How relates; and Chiron may assign
its rights as a licensor hereunder in whole or in part to any successor in
interest to some or all of Licensed Chiron Patents or Chiron IVD Know-How, as
applicable. CDC may assign its rights as a licensee of any Licensed Chiron
Patent or Chiron IVD Know-How under this Agreement to any Affiliate of CDC or
any successor in interest to all or substantially all of that part of CDC's
business to which such Licensed Chiron Patent or Chiron IVD Know-How relates;
and CDC may assign its rights as a licensor hereunder in whole or in part to any
successor in interest to some or all of CDC Patents or the CDC Know-How, as
applicable.
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11.5.2 Except as set forth in this Section 11.5, no party shall
have the right or power to assign its rights and obligations under this
Agreement without the prior written consent of the other party hereto. This
Agreement shall inure to the benefit of and be binding on the parties' permitted
assigns and successors in interest. In the event of a transfer of any Licensed
Chiron Patent, CDC Patent, CDC Know-How or Chiron IVD Know-How, the transferor
shall make provisions for the continued enjoyment of the rights under such
Licensed Chiron Patent, CDC Patent, CDC Know-How or Chiron IVD Know-How granted
under this Agreement.
11.6 NO THIRD-PARTY BENEFICIARIES. Except as set forth in Article 9,
this Agreement is entered into solely for the benefit of the parties hereto and
Purchaser, and the provisions of this Agreement shall be for the sole and
exclusive benefit of such parties. Nothing herein contained will be deemed to
create any third party beneficiaries or confer any benefit or rights on or to
any person not a party hereto other than Purchaser, and no person not a party
hereto shall be entitled to enforce any provisions hereof or exercise any rights
hereunder or other than Purchaser.
11.7 WAIVERS AND MODIFICATIONS. The failure of any party to insist on
the performance of any obligation hereunder shall not act as a waiver of such
obligation. No waiver, modification, release or amendment of any obligation
under this Agreement shall be valid or effective unless in writing and signed by
both parties hereto.
11.8 CHOICE OF LAW. This Agreement is subject to and shall be
construed and enforced in accordance with the laws of the State of New York.
11.9 HEADINGS. The headings of the Sections of this Agreement have
been inserted for convenience of reference only and do not constitute a part of
this Agreement.
11.10 ENTIRE AGREEMENT. This Agreement, together with the Stock
Purchase Agreement, the other Ancillary Agreements and any agreement executed
and delivered by the parties hereto concurrently herewith and the Exhibits
attached hereto, constitutes the entire agreement between Chiron and CDC with
respect to the subject matter hereof. There are no representations, warranties,
covenants or undertakings with respect to the subject matter hereof other than
those expressly set forth herein or therein. This Agreement, the Stock Purchase
Agreement and the other Ancillary Agreements supersede all prior agreements
between the parties with respect to the subject matter hereof, other than the
Confidentiality Agreement.
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11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date(s)
written below.
CHIRON CORPORATION CHIRON DIAGNOSTICS
CORPORATION
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- --------------------------------
Title: Title:
------------------------------ -------------------------------
Date: Date:
------------------------------- --------------------------------
Exhibits
A Compensation to Chiron
Attachment A-1: Summary of Adjustments to HCV Earned Royalties and
Minimum Payments
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Exhibit A
COMPENSATION TO CHIRON
1. EARNED ROYALTY. In consideration of the licenses granted pursuant to
Section 2.1, CDC agrees to pay earned royalties as a percentage of Net Sales of
CDC HCV/HIV Probe Products, as follows:
[CONFIDENTIAL TREATMENT REQUESTED]
(a) Earned Royalties shall be adjusted [CONFIDENTIAL TREATMENT
REQUESTED].
(b) Earned Royalties shall be payable quarterly commencing with the
first full or partial calendar quarter following the Effective Date, within
sixty (60) days following the end of each calendar quarter, and shall be
accompanied by a report pursuant to Section 3.4 of this Agreement.
2. MINIMUM ROYALTY. CDC agrees to pay Chiron a minimum patent royalty
[CONFIDENTIAL TREATMENT REQUESTED] of CDC HCV/HIV Probe Products shipped which
are directed to HCV ("Minimum Royalty"). Initially, such Minimum Royalties
shall be as follows:
[CONFIDENTIAL TREATMENT REQUESTED]
(a) Minimum Royalties shall be determined on [CONFIDENTIAL TREATMENT
REQUESTED], excluding those countries in which the Minimum Royalties are
adjusted pursuant to Paragraph 2(b). Minimum Royalties in such countries shall
be determined on a country by country, product by product basis. Minimum
Royalties shall be adjusted, [CONFIDENTIAL TREATMENT REQUESTED].
(b) At the request of Purchaser, the parties agree to meet and
reasonably consider adjustment to the Minimum Royalty with respect to any CDC
HCV/HIV Probe Product in any country in the event that action by a governmental
pricing or reimbursement authority or other governmental agency results in a
requirement that CDC sell such CDC HCV/HIV Probe Product at a price below
[CONFIDENTIAL TREATMENT REQUESTED] for such product in such country, provided
that no adjustment shall be made to the Minimum Royalty unless mutually agreed
or determined pursuant to the last sentence of this Paragraph 3 (b). The
parties intend that adjustments be made to cause the Minimum Royalty with
respect to the affected CDC HCV/HIV Probe Product in the affected country to be
consistent with the economic expectations of the parties hereunder to the
greatest extent possible, and to bear a similar relationship to the mandated
maximum pricing of the product as is borne by the Minimum Royalties specified in
Paragraph 2. If the parties are unable to agree on an adjustment mechanism, the
matter shall be submitted for resolution under Article 10, except that any
arbitration shall be conducted in the same manner as is set forth in Section
6.4.3 (d).
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(c) Minimum Royalties shall be payable quarterly commencing with the
first full or partial calendar quarter following the Effective Date, within
sixty (60) days following the end of each calendar quarter, shall be accompanied
by a report pursuant to Section 3.4, and shall be fully creditable against
Earned Royalties payable pursuant to Paragraph 1 above for the same calendar
quarter.
3. MOST FAVORED LICENSEE. In the event that Chiron grants any license to
any third party under the Chiron HCV/HIV Patents for any Probe IVD Product
pursuant to Section 2.1.3, Chiron agrees to give written notice to CDC of its
intent to grant such license, without specifying the identity of the potential
licensee, at least [CONFIDENTIAL TREATMENT REQUESTED] prior to the effective
date of such license. Chiron further agrees to give written notice to CDC of
the granting of any such additional license [CONFIDENTIAL TREATMENT REQUESTED]
following the effective date thereof, which notice shall identify [CONFIDENTIAL
TREATMENT REQUESTED].
(a) In the event that Chiron grants [CONFIDENTIAL TREATMENT REQUESTED]
pursuant to Section 2.1.3(a), and subject to paragraph 3(c), the [CONFIDENTIAL
TREATMENT REQUESTED] hereunder with respect CDC HCV/HIV Probe Products directed
to HCV shall [CONFIDENTIAL TREATMENT REQUESTED], and the [CONFIDENTIAL TREATMENT
REQUESTED] with respect to CDC HCV/HIV Probe Products directed to HIV shall
[CONFIDENTIAL TREATMENT REQUESTED], each on a product-by-product basis, without
action by CDC, [CONFIDENTIAL TREATMENT REQUESTED]. With respect to CDC HCV/HIV
Probe Products directed to HCV, in determining the [CONFIDENTIAL TREATMENT
REQUESTED]. Such [CONFIDENTIAL TREATMENT REQUESTED] shall be effective
prospectively from the later of the date of execution of the third party license
or the date on which the third party earned royalties and minimum royalties
become effective. The foregoing [CONFIDENTIAL TREATMENT REQUESTED] shall be
made on a [CONFIDENTIAL TREATMENT REQUESTED] if [CONFIDENTIAL TREATMENT
REQUESTED] third party license [CONFIDENTIAL TREATMENT REQUESTED] granted by
Chiron are [CONFIDENTIAL TREATMENT REQUESTED]. Otherwise, Paragraph 3(b) shall
apply.
(b) In the event that Chiron elects to grant [CONFIDENTIAL TREATMENT
REQUESTED] with respect to HCV or HIV pursuant to Section 2.1.3(b), the
following provisions shall apply in lieu of Paragraph 3(a) with respect to such
[CONFIDENTIAL TREATMENT REQUESTED]. Subject to Paragraph 3(c), the
[CONFIDENTIAL TREATMENT REQUESTED] hereunder with respect to CDC HCV/HIV Probe
Products directed to HCV and sold [CONFIDENTIAL TREATMENT REQUESTED]
shall [CONFIDENTIAL TREATMENT REQUESTED], and the [CONFIDENTIAL TREATMENT
REQUESTED] with respect to CDC HCV/HIV Probe Products directed to HIV and sold
[CONFIDENTIAL TREATMENT REQUESTED] shall be [CONFIDENTIAL TREATMENT REQUESTED],
each on a product by product basis, without action by CDC, to [CONFIDENTIAL
TREATMENT REQUESTED].
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(c) In no event shall [CONFIDENTIAL TREATMENT REQUESTED] made pursuant
to Paragraph 3(a) or 3(b) result in [CONFIDENTIAL TREATMENT REQUESTED]. For the
avoidance of doubt, Attachment A-1 describes the application of Paragraphs 3(a),
(b) and (c) in various licensing situations.
(d) [CONFIDENTIAL TREATMENT REQUESTED] as specified in Paragraph 3(a)
or 3(b) will be made only if the patent portfolio licensed to the third party
with respect to HCV does not contain any patents or patent applications which
are owned by Chiron, or licensed to Chiron with right to sublicense, and which
are not Chiron HCV/HIV Patents. If additional HCV patents or patent
applications are offered to the third party, either (i) Chiron will offer to
include such patents or patent applications within the Chiron HCV/HIV Patents on
the terms set forth in this Agreement [CONFIDENTIAL TREATMENT REQUESTED], or
(ii) [CONFIDENTIAL TREATMENT REQUESTED] specified in Paragraph 3(a) or 3(b) will
not be made.
(e) In addition, if [CONFIDENTIAL TREATMENT REQUESTED] the third party
referenced in Paragraph 3(a), taken as a whole, are more favorable to the
licensee than the corresponding terms of this Agreement, CDC shall have the
right to substitute, on a prospective basis, all, but not less than all, of such
terms for the corresponding terms of this Agreement, by giving written notice to
Chiron within thirty (30) days following receiving notice of such license terms.
Such substituted terms shall become effective upon Chiron's receipt of the
written notice from CDC accepting such terms.
(f) CDC shall remain liable hereunder for all amounts payable to
Chiron under the original terms of this Agreement with respect to all product
sales prior to the effective date of [CONFIDENTIAL TREATMENT REQUESTED] terms
pursuant to Paragraph 2 (b) or Paragraph 3 (a), (b) or (d) above.
4. SINGLE ROYALTY PER PRODUCT. Only one Earned Royalty and Minimum Royalty
shall be due with respect to a sale of any CDC HCV/HIV Probe Product,
irrespective of the number of patents or Valid Claims in the Licensed Chiron
Patents covering such product, and such Earned Royalty and Minimum Royalty shall
be those applicable to HCV if such product is covered by Valid Claim in the
Licensed Chiron Patents directed to both HCV and HIV.
30
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Attachment A-1
Application of Adjustments to HCV and HIV Earned Royalties and Minimum Royalties
[CONFIDENTIAL TREATMENT REQUESTED]
EXAMPLE OF HCV ROYALTY CALCULATION
[CONFIDENTIAL TREATMENT REQUESTED]
31
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EXHIBIT C
RESERVED
<PAGE>
EXHIBIT D
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement"), is made and entered into
as of the ___ day of ____________, 199__, between Chiron Corporation, a Delaware
corporation ("Chiron") and Bayer Corporation (the "Purchaser").
RECITALS
A. Chiron and the Purchaser have entered into a Stock Purchase Agreement,
dated as of September 17, 1998 (the "Stock Purchase Agreement"), pursuant to
which Chiron has agreed to sell to the Purchaser, and the Purchaser has agreed
to purchase from Chiron, all the outstanding shares of common stock of Chiron
Diagnostics Corporation, a Delaware corporation (the "Company").
B. In connection with the transactions contemplated by the Stock Purchase
Agreement, Chiron and the Purchaser are each willing to enter into certain
covenants to the other regarding their respective activities, all as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties, Chiron and the Purchaser agree as follows:
1. DEFINED TERMS.
1.1 For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Affiliate" shall mean an entity that directly, or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with, a specified entity. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any entity, means (a) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that entity, whether through the
ownership of voting securities or by contract or otherwise, or (b) the ownership
of at least fifty percent (50%) of the voting securities of that entity.
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Notwithstanding anything to the contrary contained herein, "Affiliate"
shall not include, in the case of Chiron, Novartis AG or any Affiliate of
Novartis AG (other than Chiron and any of its direct or indirect subsidiaries).
"bDNA Patents" means the patents and patent applications listed on Schedule
1.1 hereto.
"bDNA Enabled IVD Product" means any IVD Product which is developed using
bDNA Products, but shall not include any bDNA Product.
"bDNA Product" means any product, the manufacture, use or sale of which
would infringe a Valid Claim in the bDNA Patents.
"Informatics" means researching, developing, manufacturing, using and
marketing information technologies for the health care industry.
"Non-compete Period" means the period from and after the Closing Date to
the third anniversary of the Closing Date.
"Right of First Refusal Period" means the period from and after the Closing
Date to the fourth anniversary of the Closing Date.
"Third Party" means, with respect to Chiron or the Purchaser, any Person
that is not an Affiliate of Chiron or the Purchaser, as the case may be.
"Valid Claim" shall mean a claim in any issued, active, unexpired bDNA
Patent which has not been withdrawn, cancelled, lapsed or disclaimed, or held
unpatentable, invalid or unenforceable by a non-appealed or nonappealable
decision by a court or other appropriate body of competent jurisdiction. The
scope of a Valid Claim shall be limited to its terms as defined by any such
court or decision-making body of competent jurisdiction.
1.2 Unless otherwise defined herein, each capitalized term used herein
shall have the meaning given to it in the Stock Purchase Agreement.
2. NON-COMPETITION BY CHIRON AND ITS AFFILIATES.
2.1 NON-COMPETE. During the Non-compete Period, Chiron shall not, and
shall cause each of its Affiliates not to, directly or indirectly (a) engage in
manufacturing or selling In Vitro Diagnostics products, (b) solicit any customer
or prospective customer of the Business to purchase any products then sold by
the Business from anyone other
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than the Purchaser or its Affiliates, or (c) assist any Third Party in any way
to do, or attempt to do, anything prohibited by (a) or (b) above, in each case
within any of the geographic areas in which the Purchaser or any of its
Affiliates then engages in or conducts the Business, except as explicitly set
forth in this Agreement.
2.2 NON-SOLICITATION. For a period of eighteen months from the Closing
Date, Chiron shall not, and shall cause each of its Affiliates not to, directly
or indirectly recruit or solicit any person then employed by the Company or any
Subsidiary for employment with Chiron or any of its Affiliates. For a period
of eighteen months from the Closing Date, Chiron shall not, and shall cause each
of its Affiliates not to, hire any person then employed by the Company or any
Subsidiary who had been an employee of the Business as of the Closing Date.
2.3 CERTAIN PERMITTED ACTIVITIES. Notwithstanding anything to the
contrary, the restrictions set forth in this Agreement shall not prevent Chiron
or any of its Affiliates from engaging in or conducting any of the following
activities or businesses:
(a) Blood Screening;
(b) any activities or business within the scope of the Chiron/Ortho Joint
Business;
(c) Informatics;
(d) Vaccines/Therapeutics;
(e) Therametrics; and
(f) subject to Section 3.4 and the Cross-License Agreement, licensing
patents, patent applications and know-how owned or controlled by Chiron or any
of its Affiliates to Third Parties for use in any field, including products for
use in In Vitro Diagnostics.
3. RESEARCH AND DEVELOPMENT.
3.1 GENERAL. Subject to the provisions of this Section 3, the
restrictions set forth in this Agreement shall not prevent Chiron or any of its
Affiliates from engaging in any research and development activities relating to
any subject matter, including, without limitation, research and development
directly or indirectly relating to In Vitro Diagnostics products.
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3.2 DEVELOPMENT ACTIVITIES. During the Non-compete Period, without the
Purchaser' s prior written consent, neither Chiron nor any of its Affiliates
shall directly or indirectly engage in any development activities relating to In
Vitro Diagnostics products, which development activities include or would
require a submission to the FDA if conducted in the United States.
3.3 bDNA PRODUCTS.
(a) It is understood that, except as expressly set forth in the
Cross-License Agreement, neither Chiron nor any of its Affiliates is licensed
under the Cross-License Agreement or otherwise to make, use or sell any In Vitro
Diagnostic product which is a bDNA Product (a "bDNA IVD Product").
(b) As set forth in the Cross-License Agreement, Chiron and its
Affiliates have an option to obtain from the Purchaser or its Affiliates a
non-exclusive license under the bDNA Patents on commercially reasonable terms to
make, have made, use and sell Research Tools (as defined in the Cross-License
Agreement).
3.4 bDNA ENABLED IVD PRODUCTS. During the Right of First Refusal Period,
neither Chiron nor any of its Affiliates shall sell or license any bDNA Enabled
IVD Product without first complying with the provisions of this Section 3.4.
Chiron shall provide written notice to the Purchaser of Chiron's intention to
sell or license a bDNA Enabled IVD Product. In the event that the Purchaser
wishes to sell or license such product, the parties shall negotiate in good
faith for a period of three months with respect to a possible agreement. In the
event the parties are not able to reach agreement during such three month
period, Chiron shall makes its last best offer to the Purchaser. Purchaser
shall have 30 days within which to accept or reject such last best offer. If
such last best offer is not accepted by the Purchaser, Chiron shall have the
right, for a period of nine months from the date of rejection of such last best
offer by the Purchaser, to enter into such an agreement with a Third Party with
respect to such bDNA Enabled IVD Product, provided that the terms of such
agreement are no more favorable to such Third Party than the terms contained in
the Chiron's last best offer. In the event that Chiron does not enter into an
agreement with a Third Party within such nine month period, the Purchaser's
right of first refusal as set forth in this Section 3.4 shall be reinstated.
4. RELATIONSHIP WITH NOVARTIS; ASSIGNMENT.
4.1 During the Non-compete Period, Chiron shall not enter into any
arrangement with Novartis AG or any of its Affiliates (other than Chiron and its
Affiliates) pursuant to which Chiron enables Novartis AG or any such Affiliates
to
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<PAGE>
engage in any of the activities in which Chiron and each of its Affiliates are
not permitted to engage under this Agreement.
4.2 Except as expressly set forth herein, neither party may assign its
rights or obligations under this Agreement, whether by operation of law or
otherwise, without the prior written consent of the other party.
4.3 The Purchaser may assign (a) any of its rights hereunder to any
Affiliate of the Purchaser for so long as such assignee remains an Affiliate; or
(b) all of its rights and obligations hereunder to one or more Third Parties in
connection with the sale of all or substantially all of the assets of any of the
Included Businesses, provided in each case that (i) no assignment shall limit or
affect the assignor's obligations hereunder; (ii) such transferee shall be bound
by the terms and conditions of this Agreement as though it were a party hereto;
and (iii) the Purchaser may not assign any of its rights under Section 3.4
above, except in connection with the sale of all or substantially all of the
assets of the NAD Business.
4.4 Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of each of Chiron and the Purchaser and their respective
Affiliates, successors and assigns.
5. MISCELLANEOUS.
5.1 Chiron acknowledges that the foregoing covenants by Chiron are
essential elements of the transactions contemplated by this Agreement and by the
Stock Purchase Agreement and that, but for Chiron's agreement to comply with
such covenants, the Purchaser would not have agreed to enter into such
transactions. Chiron has consulted with its counsel and has been advised in all
respects concerning the reasonableness and propriety of such covenants.
5.2 The parties hereto recognize that, because of the nature of the
subject matter of this Agreement, it would be impractical and extremely
difficult to determine the actual damages incurred by the Purchaser or any of
its Affiliates in the event of a breach of the provisions of this Agreement and
that any such breach or threatened breach would cause irreparable injury to the
Purchaser and its Affiliates. Accordingly, the Purchaser and its Affiliates
shall have the right to have the provisions of this Agreement specifically
enforced by any court of competent jurisdiction, it being acknowledged and
agreed by the Purchaser and Chiron that an injunction may be issued against
Chiron or any of its Affiliates to stop or prevent any such breach or threatened
breach.
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5.3 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to agreements made and to
be performed entirely within such State, without regard to the conflicts of law
principals of such State.
5.4 If any covenant or agreement contained herein, or any part hereof, is
held to be unenforceable for any reason, the remainder of this Agreement shall
be construed as if such provision or part thereof was not included herein;
PROVIDED, THAT if the unenforceability of any such covenant or agreement is
because of the breadth of its scope, the duration of such provision or the
geographical area covered thereby, the parties agree that the court making such
determination shall have the power to reduce the breadth of the scope or the
duration and/or geographical area of such provision such that, in its reduced
form, said provision shall then be enforceable.
5.5 This Agreement, the Stock Purchase Agreement, and the other Ancillary
Agreements constitute the entire understanding of the parties hereto with
respect to the matters covered hereby and thereby.
5.6 This Agreement may not be amended or modified except by the express
written consent of the parties hereto. Any waiver by the parties of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach thereof or of any other provision.
5.7 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.
5.8 All notices or other communications required or permitted hereunder
shall be in writing and shall be made in accordance with Section 10.3 of the
Stock Purchase Agreement.
5.9 Each of the parties hereto hereby irrevocably submits in any legal
action or proceeding relating to or arising out of this Agreement or any other
document relating hereto or delivered in connection with the transactions
contemplated hereby or thereby, or for recognition and enforcement of any
judgment in respect thereof, to the exclusive jurisdiction of the United States
District Court for the District of Delaware, and appellate courts thereof. Each
of the parties hereto further (a) consents that any such action or proceeding
may be brought in such court and irrevocably and unconditionally waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in such court or that such action or proceeding was brought in an
inconvenient court and
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agrees not to plead or claim the same; (b) agrees that service of process in any
such action or proceeding may be effected by mailing a copy thereof by U.S.
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to such party at its address referred to in Section 5.8 or at
such other address of which such party shall have given notice pursuant thereto;
and (c) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law.
IN WITNESS WHEREOF, the parties hereby have executed this Agreement on the day
and year first above written.
CHIRON CORPORATION
By: __________________________
Name:
Title:
BAYER CORPORATION
By: __________________________
Name:
Title:
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EXHIBIT E
TRADEMARK LICENSE AGREEMENT
This TRADEMARK LICENSE AGREEMENT (this "Agreement") is made as of
______________, 1998 by and between Chiron Corporation, a Delaware corporation
("Chiron"), and Chiron Diagnostics Corporation, a Delaware corporation.
RECITALS
A. Chiron is the owner of rights in the trademark, service mark, trade name
and/or corporate name "CHIRON" in numerous countries throughout the world
("Chiron Mark").
B. As used herein, the term "CDC" shall include Chiron Diagnostics Corporation
and the Subsidiaries. Chiron and CDC have entered into a Stock Purchase
Agreement, dated September 17, 1998, with Bayer Corporation, an Indiana
corporation ("Bayer"), pursuant to which Chiron has agreed, among other
things, to sell all of the Stock to Bayer. As a result, following the
Closing under the Stock Purchase Agreement, Chiron and CDC will no longer
be affiliated.
C. The Chiron Mark is currently used by CDC and, pursuant to Section 4.5 of
the Stock Purchase Agreement, Chiron, CDC and Bayer have agreed that CDC
may continue to use the Chiron Mark for a limited time following the
Closing under the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and legal sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Grant.
1.1 Chiron hereby grants to CDC, and CDC accepts, the royalty-free right and
license to use the Chiron Mark solely (a) as affixed to products, labeling,
packaging materials, or promotional materials for those products and
services on which the Chiron Mark is used by CDC as of the Closing Date,
and for such new uses of the Chiron Mark on products, labeling, packaging
materials, or promotional materials which have been ordered as of the
Closing Date and (b) as part of any trade name or corporate name used by
CDC in connection with the Business as of the Closing Date.
1.2 CDC shall not have the right to expand its use of the Chiron Mark to (a)
any products or services on which the Chiron Mark is not in use as of the
Closing
<PAGE>
Date; (b) any other products or services of the same general type as the
products or services on which the Chiron Mark is in use as of the Closing
Date; (c) any product or service of any parent or affiliate of CDC (other
than the Subsidiaries); (d) the name of any legal entity which does not use
the Chiron Mark as part of its trade name or corporate name as of the
Closing Date.
1.3 CDC's license to use the Chiron Mark shall be non-exclusive, and Chiron
shall have the right to use and license others to use the Chiron Mark for
any purpose whatsoever.
1.4 CDC is licensed to use the Chiron Mark only so long as the nature and
quality of the products and services on which the Chiron Mark is used and
the business practices of the businesses in whose trade names or corporate
names the Chiron Mark is used, are the same as or exceed the quality levels
for such products, services, and business practices in effect as of the
Closing Date.
2. Term.
2.1 CDC shall have the right to use the Chiron Mark for any particular product
or service in any particular country until the later of:
(a) the depletion of inventories existing or ordered as of the Closing
Date of products, labeling, packaging materials, or promotional
materials bearing the Chiron Mark for the particular product or
service which are useable in that country; or
(b) the date on which any requisite regulatory approvals are obtained in
that country in connection with the removal of the Chiron Mark from
product, labeling, packaging materials, or promotional materials for
the particular product or service;
provided that CDC's use of the Chiron Mark shall in no event continue
longer than two years following the Closing Date. CDC shall use its
commercially reasonable efforts to secure any such requisite regulatory
approvals as promptly as practicable following the Closing Date. Regarding
use of the Chiron Mark on products and services, the parties contemplate
that CDC shall discontinue such use within each country on a
product-by-product and service-by-service basis in accordance with this
Section 2.1.
2.2 Regarding use of the Chiron Mark as part of any trade name or corporate
name, CDC shall as soon as practicable after the Closing Date, change the
names of the CDC entities to names which do not include the Chiron Mark by
filing the appropriate documents with the national or other authorities and
providing Chiron with copies of such documents. In no event shall CDC's
use of the Chiron Mark as part of any trade name or corporate name continue
longer than one year following the Closing Date.
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2.3 This Agreement is not renewable.
3. Rights and Duties.
3.1 Chiron and its agents have the right to inspect and evaluate, during
regular business hours, any goods or services on which the Chiron Mark is
used, without charge by CDC, to determine whether the quality control
standards have been met.
3.2 Chiron has the right to review and approve any and all use of the Chiron
Mark including, but not limited to, labeling, advertising, and promotional
materials, prior to the use of such items and CDC agrees that it will not
use any items that have been disapproved by Chiron; PROVIDED, HOWEVER, that
Chiron's approval shall not be unreasonably withheld. Notwithstanding the
foregoing, all such items in use by CDC as of the Closing Date are hereby
approved by Chiron. All proposed uses shall be submitted by CDC to Chiron
prior to use and shall be deemed approved if no response is received from
Chiron within 15 working days after receipt by Chiron. Once a use has been
approved by Chiron, it need not be resubmitted for approval before reuse.
3.3 Chiron has no obligation to obtain or maintain protection of the Chiron
Mark in any country. In particular, Chiron has no obligation to file or
prosecute trademark or service mark applications for, renew any
registrations of, or defend any challenges to, the Chiron Mark.
4. Rights and Duties of CDC.
4.1 CDC acknowledges that any and all rights and goodwill arising from use of
the Chiron Mark by CDC shall inure exclusively to the benefit of Chiron.
No monetary amounts shall be due to CDC as a result of the development of
any goodwill in the Chiron Mark. CDC agrees that during the term of this
Agreement and after the expiration or termination thereof, CDC shall not,
directly or indirectly, contest or aid in contesting the validity or
Chiron's ownership of the Chiron Mark or take any action whatsoever in
derogation of Chiron's claimed rights therein.
4.2 CDC agrees to execute all documents reasonably requested by Chiron to
obtain protection of the Chiron Mark or to maintain its continued validity
or enforceability and to take no action that could reasonably be expected
to jeopardize the validity, enforceability, or Chiron's ownership thereof.
4.3 CDC agrees to observe all such requirements with respect to trademark and
service mark notices and the identification of Chiron as licensor of the
Chiron Mark as Chiron may reasonably direct.
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4.4 CDC agrees that it will not engage in any conduct that would reasonably be
likely to result in injury to the reputation and goodwill associated with
Chiron and the Chiron Mark.
4.5 CDC acknowledges that CDC's use of the Chiron Mark pursuant to this
Agreement does not give CDC any ownership interest or other interest in or
to the Chiron Mark.
5. Litigation.
5.1 CDC shall promptly notify Chiron of any suspected infringement of,
challenge to, or litigation involving the Chiron Mark.
5.2 Chiron has the sole and exclusive right, but not the obligation, to take
action against uses by others that may constitute infringement of the
Chiron Mark and CDC has no right whatsoever to take any such action.
5.3 Chiron has the sole and exclusive right, but not the obligation, to defend
CDC against challenges to CDC's use of the Chiron Mark. Should Chiron
decide not to defend CDC, Chiron has the right to require CDC to cease all
use of the challenged Chiron Mark for the use at issue in the country at
issue and CDC agrees to promptly discontinue all such use.
5.4 Should Chiron decide to proceed with any such action or defense, Chiron
shall have the right to direct and control, in its sole discretion, any
negotiation, administrative proceeding, or litigation involving the Chiron
Mark, including any settlement thereof, at Chiron's expense.
5.5 In the event of any litigation relating to the Chiron Mark, CDC shall
execute any and all documents and do such acts necessary to carry out such
litigation as may reasonably be requested by Chiron including, but not
limited to, becoming a nominal party to any legal action. Chiron agrees to
reimburse CDC for all of CDC's out-of-pocket costs and expenses incurred in
connection with doing such acts.
6. Termination.
6.1 CDC shall be in default under this Agreement, and all rights granted herein
shall automatically terminate without notice to CDC, if CDC attempts to
transfer any interest in this Agreement other than as permitted in Section
7 of this Agreement.
6.2 Upon occurrence of any of the following events of default, Chiron may, at
its option, terminate this Agreement and any or all rights granted
hereunder, without affording CDC any opportunity to cure the default,
effective immediately upon receipt of notice by CDC:
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(a) if CDC is convicted of any criminal activity, or is convicted of any
other offense likely to have an adverse effect on the reputation of
Chiron or the Chiron Mark;
(b) if a danger to public health or safety results from the sale by CDC of
goods and services bearing the Chiron Mark; or
(c) if CDC, after curing a material default under this Agreement, commits
the same material default again, whether or not cured after notice.
6.3 Except as otherwise provided in this Section 6, CDC shall have 30 days
after receipt from Chiron of a written notice of default within which to
cure the default to the satisfaction of Chiron and to provide Chiron with
evidence that the default has been cured.
6.4 CDC acknowledges that use of the Chiron Mark in violation of this Agreement
constitutes trademark or service mark infringement and unfair competition
and is likely to result in irreparable harm to Chiron. Nothing contained
in this Agreement shall prevent Chiron from seeking injunctive relief
against conduct that is likely to cause Chiron loss or damage.
6.5 Upon expiration or termination of this Agreement, all rights granted to CDC
herein shall terminate and CDC shall immediately cease all use of the
Chiron Mark and, within 20 business days of the expiration or termination,
file the appropriate documents to change the names of CDC and all
Subsidiaries to names which do not include the Chiron Mark and provide
Chiron with copies of such documents.
7. Transfer.
7.1 This Agreement and the rights and duties hereunder may be freely
transferred by Chiron, but may not be transferred, by operation of law or
otherwise, by CDC, except to a third party in connection with the sale of
all or substantially all of the assets of any of the Included Businesses,
PROVIDED that such transferee shall be bound by the terms and conditions of
this Agreement as though it were a party hereto. A merger of CDC with
Bayer or any wholly-owned subsidiary of Bayer or a transfer to any
wholly-owned subsidiary of Bayer shall not be deemed a transfer for
purposes of this Agreement.
8. Indemnification.
CDC shall indemnify, defend and hold harmless Chiron and its directors,
officers, employees and agents from and against any loss, damage,
liability, cost, deficiency, assessment and expense including, without
limitation, any interest, fine, court cost and reasonable investigation
cost, penalty and reasonable fees, disbursements and expenses of attorneys
and expert witnesses ("Losses") arising out of the manufacture or sale by
CDC of products bearing the Chiron Mark pursuant to this Agreement.
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9. Warranties.
Chiron expressly disclaims any and all warranties with respect to the
Chiron Mark.
10. Definitions.
Any capitalized terms used but not defined herein shall have the meanings
set forth in the Stock Purchase Agreement.
11. Notices.
All notices or communications required or permitted to be given hereunder
shall be in writing and shall be delivered by hand or sent by telefax or
sent, postage prepaid, by registered, certified or express mail or
reputable overnight courier service and shall be deemed given when so
delivered by hand, or telefaxed, or if mailed, three days after mailing
(one business day in the case of express mail or overnight courier
service), as follows (or such other address as such party may designate in
writing):
To Chiron:
Chiron Corporation
4560 Horton Street
Emeryville, California 94608-2916
Attention: Chief Executive Officer
Telefax: (510) 655-6281
With a copy to:
Chiron Corporation
4560 Horton Street
Emeryville, California 94608-9916
Attention: General Counsel
Telefax: (510) 654-5360
To CDC:
Chiron Diagnostics Corporation
333 Coney Street
E. Walpole, MA 02032-1597
Attention: President
Telefax: (508) 660-8100
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With a copy to:
Bayer Corporation
Business Group Diagnostics
511 Benedict Avenue
Tarrytown, NY 10591-5097
Attention: General Counsel
Telefax: (914) 524-3594
Bayer Corporation
100 Bayer Road
Pittsburgh, Pennsylvania 15205-9741
Attention: General Counsel
Telefax: (412) 778-4417
12. Governing Law.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York, applicable to instruments made and
to be performed with such State, without regard to the conflicts of law
principles of such State.
13. Entire Agreement.
This Agreement and the Stock Purchase Agreement constitutes the entire
agreement between Chiron and CDC with respect to the subject matter hereof.
There are no representations, warranties, covenants or undertakings with
respect to the subject matter hereof other than those expressly set forth
in the Stock Purchase Agreement. This Agreement and the Stock Purchase
Agreement supersede all prior agreements between the parties with respect
to the subject matter hereof, other than the Confidentiality Agreement.
14. Counterparts.
This Agreement may be executed in counterparts, all of which together shall
constitute one and the same instrument.
15. Jurisdiction; Waivers.
Each of the parties hereto hereby irrevocably submits in any legal action
or proceeding relating to or arising out of this Agreement or any other
document relating hereto or delivered in connection with the transactions
contemplated hereby or thereby, or for recognition and enforcement of any
judgment in respect thereof, to the exclusive jurisdiction of the United
States District Court for the District of Delaware, and appellate
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courts thereof. Each of the parties hereto further (a) consents that any
such action or proceeding may be brought in such court and irrevocably and
unconditionally waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same; (b) agrees that service of process in any such
action or proceeding may be effected by mailing a copy thereof by U.S.
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to such party at its address set forth in Section 11 or at
such other address of which such party shall have given notice pursuant
thereto; and (c) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law.
-8-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the
date first above written, by the duly authorized representatives of the parties
hereto.
CHIRON CORPORATION
By:
------------------------------------------
Name:
Title:
CHIRON DIAGNOSTICS CORPORATION
By:
------------------------------------------
Name:
Title:
-9-
<PAGE>
CHIRON CORPORATION
NOTICE OF GRANT OF STOCK OPTION
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
ID: 94-2754624
< < First_Name > > < < Last_Name > > Option Number: < < Number > >
< < Address_Line_1 > > Plan: < < Plan > >
< < City, > > < < State > > < < Zip_Code > > ID: < < SSN > >
You have been granted a(n) < < Long_Type > > to buy < < Shares_Granted > >
shares of Chiron Corporation stock at < < Option_Price > > per share,
effective as of < < Option_Date > > (the "Option Grant Date").
Your shares become exercisable as follows:
< < Shares_Period_1 > > shares vest on < < Vest_Date_Period_1 > >
< < Shares_Period_2 > > shares will vest monthly thereafter with full
vest on < < Vest_Date_Period_2 > >
This Option will expire ten years from the Option Grant Date above.
This Option shall become exercisable in accordance with the above-described
schedule. In no event shall the Option become exercisable for any additional
Option Shares after Optionee's cessation of employment. In no event may this
Option be exercised for any fractional shares.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the Chiron Corporation 1991 Stock Option Plan as
amended (the "Plan"). Optionee further agrees to be bound by the terms of the
Plan and the terms of the Option as set forth in the 1997-1 Form Stock Option
Agreement attached hereto as Exhibit A. A copy of the Plan is available upon
request made to the Corporate Secretary at the Corporation's principal offices.
NO EMPLOYMENT CONTRACT. Nothing in this Notice or in the attached 1997-1
Form Stock Option Agreement or in the Plan shall confer upon Optionee any right
to continue in the employ of the Corporation or any affiliate or constitute any
contract or agreement of employment or interfere in any way with the right of
the Corporation or an affiliate to reduce such Optionee's compensation or to
terminate Optionee's employment at any time, with or without cause; but nothing
contained in this Notice shall affect any contractual rights of Optionee
pursuant to a written employment agreement.
WITHHOLDING. The Option holder agrees, as a condition to the exercise of
this Option, to make appropriate arrangements with the Committee, the
Corporation, or any subsidiary that employs the Option holder for the
satisfaction of any federal, state or local income and employment tax
withholding requirements applicable to the exercise of this Option or the sale
of shares acquired under this Option.
DEFINITIONS. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached 1997-1 Form Stock Option
Agreement.
DATED: ____________, ____ CHIRON CORPORATION
By:
-------------------------------------------
Title: President and Chief Executive Officer
-------------------------------------------
ATTACHMENT
EXHIBIT A: 1997-1 FORM STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT A
CHIRON CORPORATION
1997-1 FORM STOCK OPTION AGREEMENT
A. MANNER OF EXERCISING OPTION.
1. This Option is exercisable by delivering notice in such form and to
such person as the Corporation may designate. The exercise date will be the date
that this notice is delivered ("Exercise Date").
2. Upon exercise, the Optionee must deliver to the Corporation full
payment of the Exercise Price in one or more of the following forms: cash,
shares of Common Stock of the Corporation held by the Option holder for the
requisite period to avoid a charge to the Corporation's earnings and valued as
of the Exercise Date, or delivery in a manner approved by the Corporation of
irrevocable instructions to a broker to promptly deliver to the Corporation the
amount of sale or loan proceeds to pay the Exercise Price.
3. In order to assist the Optionee in the acquisition of shares of Common
Stock pursuant to this Agreement, the Committee may (but is not required to)
authorize, under such terms and conditions as it may determine, the extension of
a loan to Optionee from the Corporation, the payment by Optionee of the Exercise
Price in installments, or a guarantee by the Corporation of a loan obtained by
Optionee from a third party.
4. The Option holder will furnish to the Corporation such documentation
as the Corporation may request to verify that the Optionee has the right to
exercise this Option.
5. For purposes of this Option, the Fair Market Value of a share of
Common Stock on any relevant date will be determined in accordance with the
following provisions:
a. If the Common Stock is not at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value will be the average
between the reported high price and the reported low price on the date in
question of one share of Common Stock in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its NASDAQ system or any successor system.
b. If the Common Stock is at the time listed or admitted to trading
on any stock exchange, then the Fair Market Value will be the average between
the reported high price and the reported low price on the date in question of
one share of Common Stock on the stock exchange that is the primary market for
the stock, as such prices are officially quoted on such exchange.
c. If the Common Stock is at the time neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market (or, if
the Committee determines that neither subparagraph (i) nor subparagraph (ii)
above reflects Fair Market Value) then the Fair Market Value will be determined
by the Committee after taking into account such factors as the Committee deems
appropriate.
B. TERMINATION. This Option will cease to be exercisable and will expire
prior to the Expiration Date should one of the following provisions become
applicable. For purposes of these provisions, the terms "employee" and
"employment" include service as an employee, an independent contractor or a
consultant.
a. Should Optionee cease to be an employee of the Corporation or its
subsidiaries (other than by reason of death, permanent disability or termination
for cause as specified below) at any time during the option term, then the
period for exercising this Option will be reduced to a three (3) month period
commencing with the date of such cessation of employee status, but in no event
will this Option be exercisable at any time after the Expiration Date. During
such limited period of exercisability, this Option may not be exercised for more
than that number of Option Shares (if any) for which it is exercisable on the
date of Optionee's cessation of employment status. Upon the expiration of such
limited period or (if earlier) upon the Expiration Date, this Option will
terminate and cease to be outstanding.
b. Should Optionee die while this Option is outstanding, the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) will have the right to exercise this Option, but only with
respect to that number of Option Shares (if any) for which the Option is
exercisable on the date of Optionee's death. This right will lapse and this
Option will cease to be exercisable upon the earlier of (A) the expiration of
the twelve (12)-month period measured from the date of Optionee's death or (B)
the Expiration Date.
c. Should Optionee become permanently disabled and cease by reason
thereof to be an employee of the Corporation or its subsidiaries at any time
during the option term, then Optionee will have a period of twelve (12) months
(commencing with the date of such cessation of employee status) during which to
exercise this Option; provided, however, that in no event will this Option be
exercisable at any time after the Expiration Date. During this limited period
of exercisability, the Option may not be exercised for more than that number of
Option Shares (if any) for which it is exercisable on the date of Optionee's
cessation of employment. Optionee will be deemed to be permanently disabled if
Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than 12 months, unable to engage in any substantial gainful employment.
Upon expiration of the limited period of exercisability or (if earlier) on the
Expiration Date, this Option will terminate and cease to be outstanding.
d. If Optionee's employment is terminated for cause (including, but
not limited to, any act of dishonesty, willful misconduct, fraud or embezzlement
or any unauthorized disclosure of confidential information or trade secrets),
then this Option will terminate and cease to be outstanding on the date of such
termination of employment.
C. CHANGE IN CONTROL.
1. In the event the Corporation or its stockholders enter into an
agreement to dispose of all or substantially all of the assets or outstanding
capital stock of the Corporation by means of sale, merger, reorganization or
liquidation then this Option, to the extent not previously exercised or
terminated, will become exercisable, immediately prior to the consummation of
such sale, merger, reorganization or liquidation with respect to the full number
of shares of
<PAGE>
Common Stock purchasable under such option. However, no such acceleration of
the Exercise Date will occur if the terms of the agreement require, as a
prerequisite to consummation of any such sale, merger, reorganization or
liquidation, that each such outstanding option will be either assumed by the
successor corporation or the parent thereof or replaced with a comparable option
to purchase shares of capital stock of the successor corporation or parent
thereof. The determination of such comparability will be made by the Committee,
and its determination will be final, binding and conclusive. Upon consummation
of the sale, merger, reorganization or liquidation contemplated by the
agreement, this Option, whether or not accelerated, will terminate and cease to
be exercisable, unless assumed pursuant to a written agreement by the successor
corporation or parent thereof.
2. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
D. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the total number and/or class of securities
subject to this Option and (ii) the Exercise Price in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
E. STOCKHOLDER RIGHTS. The holder of this Option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
F. NONTRANSFERABILITY. This Option shall be neither transferable nor
assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. The terms of this Option are binding upon the
executors, administrators, successors and assigns of the Optionee.
G. COMPLIANCE WITH LAWS AND REGULATIONS.
1. The exercise of this Option and the issuance of the Option Shares upon
such exercise shall be subject to compliance by the Corporation and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
2. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this Option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
H. NOTICES. Any notice required to be given or delivered to the Corporation
under the terms of this Agreement shall be in writing and addressed to the
Corporation at its principal corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
I. EXCESS SHARES. If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this Option shall be void
with respect to those excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
J. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event this
Option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
a. This Option shall cease to qualify for favorable tax treatment as
an Incentive Option if (and to the extent) this Option is exercised for one or
more Option Shares: (A) more than three (3) months after the date Optionee
ceases to be an employee for any reason other than death or permanent disability
or (B) more than twelve (12) months after the date Optionee ceases to be an
employee by reason of death or permanent disability.
b. No installment under this Option shall qualify for favorable tax
treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective date or dates of grant) of the
Common Stock or other securities for which this Option or any other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any parent or subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should such One Hundred Thousand Dollar
($100,000) limitation be exceeded in any calendar year, this Option shall
nevertheless become exercisable for the excess shares in such calendar year as a
Non-Statutory Option.
c. Should the exercisability of this Option be accelerated upon a
Change in Control, then this Option shall qualify for favorable tax treatment as
an Incentive Option only to the extent the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this Option first
becomes exercisable in the calendar year in which the Change in Control occurs
does not, when added to the aggregate value (determined as of the respective
date or dates of grant) of the Common Stock or other securities for which this
Option or one or more other Incentive Options granted to Optionee prior to the
Grant Date (whether under the Plan or any other option plan of the Corporation
or any parent or subsidiary) first become exercisable during the same calendar
year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should
the applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in
the calendar year of such Change in Control, the Option may nevertheless be
exercised for the excess shares in such calendar year as a Non-Statutory Option.
d. Should Optionee hold, in addition to this Option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this Option, then the foregoing limitations on
the exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
<PAGE>
CHIRON CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR AUTOMATIC STOCK OPTION
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
ID: 94-2754624
NAME Option Number: xxxxxx
ADDRESS Plan: 1991
ID: xxxxxxxxx
You have been granted a(n) Non-qualified Stock Option to buy _____ shares
of Chiron Corporation stock at $_______ per share, effective as of ________,
____ (the "Option Grant Date").
Your shares become exercisable as follows:
_____ shares vest on ________, ____
_____ shares will vest yearly thereafter with full vest on ________,
____
This Option will expire ten years from the option date above.
This Option shall become exercisable in accordance with the above-described
schedule. In no event shall the Option become exercisable for any additional
Option Shares after Optionee's cessation of Board Service. In no event may this
Option be exercised for any fractional shares.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the Chiron Corporation 1991 Stock Option Plan
(the "Plan") governing Automatic Option Grants to non-employee directors.
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the 1997-1 Form Automatic Stock Option Agreement. A
copy of the Plan is available upon request made to the Corporate Secretary at
the Corporation's principal offices.
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE RIGHT
EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT SHALL
BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY
TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
NO IMPAIRMENT OF RIGHTS. Nothing in this Notice or in the 1997-1 Form
Automatic Stock Option Agreement or in the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation and the
Corporation's stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
DEFINITIONS. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the 1997-1 Form Automatic Stock Option
Agreement.
DATED: _______________, ____ CHIRON CORPORATION
By:
------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------
<PAGE>
EXHIBIT A
CHIRON CORPORATION
1997-1 FORM AUTOMATIC STOCK OPTION AGREEMENT
A. MANNER OF EXERCISING OPTION.
1. This Option is exercisable by delivering notice in such form and to
such person as the Corporation may designate. The exercise date will be the date
that this notice is delivered ("Exercise Date").
2. Upon exercise, the Optionee must deliver to the Corporation full
payment of the Exercise Price in one or more of the following forms: cash,
shares of Common Stock of the Corporation held by the Option holder for the
requisite period to avoid a charge to the Corporation's earnings and valued as
of the Exercise Date, or delivery in a manner approved by the Corporation of
irrevocable instructions to a broker to promptly deliver to the Corporation the
amount of sale or loan proceeds to pay the Exercise Price.
3. In order to assist the Optionee in the acquisition of shares of Common
Stock pursuant to this Agreement, the Committee may (but is not required to)
authorize, under such terms and conditions as it may determine, the extension of
a loan to Optionee from the Corporation, the payment by Optionee of the Exercise
Price in installments, or a guarantee by the Corporation of a loan obtained by
Optionee from a third party.
4. The Option holder will furnish to the Corporation such documentation
as the Corporation may request to verify that the Optionee has the right to
exercise this Option.
5. For purposes of this Option, the Fair Market Value of a share of
Common Stock on any relevant date will be determined in accordance with the
following provisions:
a. If the Common Stock is not at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value will be the average
between the reported high price and the reported low price on the date in
question of one share of Common Stock in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its NASDAQ system or any successor system.
b. If the Common Stock is at the time listed or admitted to trading
on any stock exchange, then the Fair Market Value will be the average between
the reported high price and the reported low price on the date in question of
one share of Common Stock on the stock exchange that is the primary market for
the stock, as such prices are officially quoted on such exchange.
c. If the Common Stock is at the time neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market (or, if
the Committee determines that neither subparagraph (i) nor subparagraph (ii)
above reflects Fair Market Value) then the Fair Market Value will be determined
by the Committee after taking into account such factors as the Committee deems
appropriate.
B. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board member
cease while this option remains outstanding, then the option term specified in
the Notice of Grant shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
1. Should Optionee cease to serve as a Board member for any reason (other
than death or Permanent Disability) while this option is outstanding, then the
period for exercising this option shall be limited to a three (3)-month period
commencing with the date of such cessation of Board service, but in no event
shall this option be exercisable at any time after the Expiration Date. During
such limited period of exercisability, this option may not be exercised in the
aggregate for more than the number of Option Shares (if any) in which Optionee
is vested on the date of his or her cessation of Board service. Upon the EARLIER
of (i) the expiration of such three (3)-month period or (ii) the specified
Expiration Date, the option shall terminate and cease to be exercisable with
respect to any vested Option Shares for which the option has not been exercised.
2. Should Optionee die during the three (3)-month period following his or
her cessation of Board service and hold this option, at the time of his or her
death, then the personal representative of Optionee's estate or the person or
persons to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right to
exercise this option for any or all of the Option Shares in which Optionee is
vested at the time of Optionee's cessation of Board service (less any Option
Shares purchased by Optionee after such cessation of Board service but prior to
death). Such right of exercise shall terminate, and this option shall
accordingly cease to be exercisable for such vested Option Shares, upon the
EARLIER of (i) the expiration of the three (3)-month period measured from the
date of Optionee's cessation of Board service or (ii) the specified Expiration
Date.
3. Should Optionee cease service as a Board member by reason of death or
Permanent Disability, then all Option Shares at the time subject to this option
but not otherwise vested shall vest in full so that this option may be exercised
for any or all of the Option Shares as fully vested shares of Common Stock at
any time prior to the EARLIER of (i) the expiration of the twelve (12)-month
period measured from the date of Optionee's cessation of Board service or (ii)
the specified Expiration Date, whereupon this option shall terminate and cease
to be outstanding.
4. Upon Optionee's cessation of Board service for any reason other than
death or Permanent Disability, this option shall immediately terminate and cease
to be outstanding with respect to any and all Option Shares in which Optionee is
not otherwise at that time vested in accordance with the normal Vesting Schedule
or the special vesting acceleration provisions of Paragraph C below.
<PAGE>
C. CHANGE IN CONTROL.
1. In the event the Corporation or its stockholders enter into an
agreement to dispose of all or substantially all of the assets or outstanding
capital stock of the Corporation by means of sale, merger, reorganization or
liquidation then this Option, to the extent not previously exercised or
terminated, will become exercisable, immediately prior to the consummation of
such sale, merger, reorganization or liquidation with respect to the full number
of shares of Common Stock purchasable under such option. However, no such
acceleration of the Exercise Date will occur if the terms of the agreement
require, as a prerequisite to consummation of any such sale, merger,
reorganization or liquidation, that each such outstanding option will be either
assumed by the successor corporation or the parent thereof or replaced with a
comparable option to purchase shares of capital stock of the successor
corporation or parent thereof. The determination of such comparability will be
made by the Committee, and its determination will be final, binding and
conclusive. Upon consummation of the sale, merger, reorganization or
liquidation contemplated by the agreement, this Option, whether or not
accelerated, will terminate and cease to be exercisable, unless assumed pursuant
to a written agreement by the successor corporation or parent thereof.
2. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
D. ADJUSTMENT IN OPTION SHARES. Should any change be made to the Common Stock
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the total number and/or class of securities
subject to this Option and (ii) the Exercise Price in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
E. STOCKHOLDER RIGHTS. The holder of this Option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
F. NONTRANSFERABILITY. This Option shall be neither transferable nor
assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. The terms of this Option are binding upon the
executors, administrators, successors and assigns of the Optionee.
G. COMPLIANCE WITH LAWS AND REGULATIONS.
1. The exercise of this Option and the issuance of the Option Shares upon
such exercise shall be subject to compliance by the Corporation and Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
2. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this Option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
H. NOTICES. Any notice required to be given or delivered to the Corporation
under the terms of this Agreement shall be in writing and addressed to the
Corporation at its principal corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
I. EXCESS SHARES. If the Option Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this Option shall be void
with respect to those excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
<PAGE>
PRINTED ON CHIRON LETTERHEAD
July 8, 1998 ***[CONFIDENTIAL TREATMENT
REQUESTED]***
VIA FACSIMILE & MAIL
Richard Barker, Ph.D. PERSONAL & CONFIDENTIAL
The Somerset
416 Commonwealth Avenue, Apt. 707
Boston, MA 02215-2811
Dear Richard:
I am writing to record the understanding between you and Chiron Corporation
regarding certain elements of your compensation.
1. PERFORMANCE COMPENSATION. In lieu of any other 1998 AIP you will receive a
cash pay out based upon performance having the following components:
Target performance pay out of $350,000 at a 100% level of performance as defined
in the metrics shown below, with a maximum pay out of $800,000 at the 200% level
of achievement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Weight Scale Factors
---------------------------------------------------------------------------
% 25% 50% 100 150 200
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $MM 15% 574 589 618 633 643
- ----------------------------------------------------------------------------------------------------
Earnings
$MM * 45% 30.6 34.6 42.6 46.6 50.6
- ----------------------------------------------------------------------------------------------------
Project 40/Horizon
Savings $MM ** 10% 11.9 14.0 16.1 18.2 19.5
- ----------------------------------------------------------------------------------------------------
Delta Value
25% See Text Below
- ----------------------------------------------------------------------------------------------------
Informatics Valuation
to Chiron $MM 5% *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------
Payment
Opportunity $87,500 $175,000 $350,000 $625,000 $800,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
Your AIP will be administered consistent with the senior Diagnostics team AIP as
it relates to the calculation of revenues, earnings and Project 40/Horizon.
Weighting and scale factors, of course, are different.
* Pre-tax operating income, adjusted to 1998 budget exchange rates.
** As measured for the purpose of Chiron Diagnostic metrics (defined in
Sullivan to Sulat memorandum dated June 11, 1998).
<PAGE>
Richard Barker
July 8, 1998
Page 2 of 3
The value of a Delta transaction to Chiron shall be determined by the
Compensation Committee of the Board, reasonably and in good faith, using the
following valuation scale:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
25% 100% 125% 150% 200%
--- ---- ---- ---- ----
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sale for cash
(pre-tax) *** *** *** *** ***
- --------------------------------------------------------------------------------
% Equity in JV &
Boot * *** ***
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
* Where boot is the fair market value to Chiron of any collateral
transactions with the venture or partner and/or value of retained businesses
(e.g. cash payments, carved out businesses (e.g. Critical Care) (other than
probes for blood screening, medical metrics, Ortho, HCV/HIV deals), committed
investment by partner of working capital (or other capital) without dilution
of Chiron equity). [***Confidential Treatment Requested***] [***Confidential
Treatment Requested***] The intent of this alternative metric is to produce
equivalent bonus payouts for Delta transactions that produce equivalent
aggregate value to Chiron (taking all relevant factors, including banker
valuations, into account) even if the Delta transaction happens not to take
the form of an outright sale for cash.
All intermediate points to be interpreted on a straight line basis. All values
and amounts are pre-tax.
Values for Informatics will be based upon the pre-tax value of Chiron
Informatics realized by Chiron in a financing, sale or other disposition,
including value in the form of research funding agreements and equity
investments by strategic or financial partners. If a joint venture is created,
the valuation will be that confirmed in the fairness opinion to be delivered to
the Board or otherwise as determined reasonably and in good faith by the Board
or its Compensation Committee.
Payment will be made as soon as calculations can be made in Q1 1999, but in no
event later than March 31, 1999. If your employment is terminated without cause
prior to year end, or if you terminate your employment before year end but after
a reasonable transition following the close of a Delta transaction, then these
payments will be prorated based on the portion of the year during which you were
employed. If you terminate prior to closure of a Delta or Informatics
transaction, your AIP will be reduced to exclude any value for these matters.
2. SEVERANCE / PARACHUTE PAYMENT. In consideration of a customary mutual
release and settlement agreement, you will be permitted to resign following
closure of a Delta transaction and a suitable transition period not exceeding
six months, if you are not offered the position of chief executive of the joint
venture. In lieu of any other severance payment, whether from Chiron, Delta
partner, or otherwise, you will receive $800,000 from Chiron on termination of
your employment. This represents the approximate value of the restricted stock
units granted to you upon your initial employment. If this payment is timely
made, the initial restricted stock units will not vest. This payment could be
accelerated upon an earlier termination with our mutual agreement. Until
<PAGE>
Richard Barker
July 8, 1998
Page 3 of 3
termination, your present salary and benefits will continue and your stock
options will continue to vest.
If the foregoing is acceptable to you, please sign and return to me a copy of
this letter.
Very truly yours,
/s/ William G. Green Agreed:
William G. Green
Senior Vice President and /s/Richard W. Barker
General Counsel --------------------
Richard Barker, Ph.D.
cc: William J. Rutter
Sean P. Lance
<PAGE>
Richard Barker
July 8, 1998
Page 4 of 3
bcc: Linda W. Short
<PAGE>
EXHIBIT 11
CHIRON CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- --------------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Earnings per share:
Income (loss) from continuing operations
available to common stockholders $ 33,914 $ (19,454) $ 61,558 $ 1,296
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic income (loss) per share $ 0.19 $ (0.11) $ 0.35 $ 0.01
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted income (loss) per share $ 0.19 $ (0.11) $ 0.34 $ 0.01
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) available to common
stockholders $ 84,435 $ (12,681) $ 164,303 $ 18,397
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic income (loss) per share $ 0.47 $ (0.07) $ 0.93 $ 0.11
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted income (loss) per share $ 0.47 $ (0.07) $ 0.91 $ 0.10
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in earnings per share computations:
Weighted-average common shares outstanding 177,820 174,221 177,086 172,930
Effect of dilutive securities:
Options and equivalents 1,937 - 2,447 4,393
Warrants 135 - 170 205
Performance units - - - 41
----------- ----------- ----------- -----------
Weighted-average common shares
outstanding plus assumed conversions 179,892 174,221 179,703 177,569
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONSOLIDATED BALANCE SHEET DATED SEPTEMBER 30, 1998 AND
UNAUDITED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998<F5>
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998<F5>
<CASH> 80,468
<SECURITIES> 339,496<F1>
<RECEIVABLES> 348,015
<ALLOWANCES> 0
<INVENTORY> 177,441
<CURRENT-ASSETS> 886,260
<PP&E> 820,781
<DEPRECIATION> 306,505
<TOTAL-ASSETS> 1,960,449
<CURRENT-LIABILITIES> 373,593
<BONDS> 405,865<F2>
0
0
<COMMON> 1,782
<OTHER-SE> 1,140,116<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,960,449
<SALES> 278,091
<TOTAL-REVENUES> 512,147
<CGS> 120,917
<TOTAL-COSTS> 120,917
<OTHER-EXPENSES> 222,385<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,638
<INCOME-PRETAX> 77,097
<INCOME-TAX> 15,539
<INCOME-CONTINUING> 61,558
<DISCONTINUED> 102,745
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,303
<EPS-PRIMARY> 0.93<F6>
<EPS-DILUTED> 0.91<F7>
<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 AND ACCUMULATED
OTHER COMPREHENSIVE LOSS.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT, WRITE-OFF OF PURCHASED IN-PROCESS
TECHNOLOGIES, RESTRUCTURING AND REORGANIZATION CHARGES AND OTHER OPERATING
EXPENSES.
<F5>ACTUAL FISCAL YEAR END WILL BE, AND PERIOD END WAS, JAN-03-1999 AND
SEP-27-1998, RESPECTIVELY. FOR PRESENTATION PURPOSES, DATES USED IN THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES REFER TO THE FISCAL MONTH END.
<F6>REPRESENTS BASIC NET INCOME PER SHARE. BASIC INCOME PER SHARE FROM CONTINUING
OPERATIONS AND BASIC INCOME PER SHARE FROM DISCONTINUED OPERATIONS WERE $0.35
AND $0.58, RESPECTIVELY.
<F7>REPRESENTS DILUTED NET INCOME PER SHARE. DILUTED INCOME PER SHARE FROM
CONTINUING OPERATIONS AND DILUTED INCOME PER SHARE FROM DISCONTINUED OPERATIONS
WERE $0.34 AND $0.57, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONSOLIDATED BALANCE SHEET DATED SEPTEMBER 30, 1997 AND
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997<F5>
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997<F5>
<CASH> 103,537
<SECURITIES> 74,641<F1>
<RECEIVABLES> 324,185
<ALLOWANCES> 0
<INVENTORY> 185,355
<CURRENT-ASSETS> 725,711
<PP&E> 807,549
<DEPRECIATION> 257,059
<TOTAL-ASSETS> 1,701,762
<CURRENT-LIABILITIES> 466,424
<BONDS> 395,640<F2>
0
0
<COMMON> 1,750
<OTHER-SE> 812,667<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,701,762
<SALES> 173,090
<TOTAL-REVENUES> 413,568
<CGS> 81,969
<TOTAL-COSTS> 81,969
<OTHER-EXPENSES> 228,268<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,710
<INCOME-PRETAX> 14,571
<INCOME-TAX> 13,275
<INCOME-CONTINUING> 1,296
<DISCONTINUED> 17,101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,397
<EPS-PRIMARY> 0.11<F6>
<EPS-DILUTED> 0.10<F7>
<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, IMPAIRMENT LOSS ON LONG-LIVED ASSETS AND
OTHER OPERATING EXPENSES.
<F5>ACTUAL FISCAL YEAR END WILL BE, AND PERIOD END WAS, DEC-28-1997 AND
SEP-28-1997, RESPECTIVELY. FOR PRESENTATION PURPOSES, DATES USED IN THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES REFER TO THE FISCAL MONTH END.
<F6>REPRESENTS BASIC NET INCOME PER SHARE. BASIC INCOME PER SHARE FROM CONTINUING
OPERATIONS AND BASIC INCOME PER SHARE FROM DISCONTINUED OPERATIONS WERE $0.01
AND $0.10, RESPECTIVELY.
<F7>REPRESENTS DILUTED NET INCOME PER SHARE. DILUTED INCOME PER SHARE FROM
CONTINUING OPERATIONS AND DILUTED INCOME PER SHARE FROM DISCONTINUED OPERATIONS
WERE $0.01 AND $0.09, RESPECTIVELY.
</FN>
</TABLE>
