<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 MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission File Number: 0-12798
CHIRON CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2754624
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4560 HORTON STREET, EMERYVILLE, CALIFORNIA 94608
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(Address of principal executive offices) (Zip code)
(510) 655-8730
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
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 APRIL 30, 1999
Common Stock, $0.01 par value 181,602,491
<PAGE>
CHIRON CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998.................................................3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1999 and 1998.......................................4
Condensed Consolidated Statements of Comprehensive
Income for the three months ended March 31, 1999 and 1998............................5
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1999 and 1998.......................................6
Notes to Condensed Consolidated Financial Statements.................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK......................................................................22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................23
SIGNATURES.............................................................................................25
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CHIRON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 69,146 $ 513,315
Short-term investments in marketable debt securities 648,355 716,630
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Total cash and short-term investments 717,501 1,229,945
Accounts receivable 184,032 169,098
Inventories 80,842 79,869
Other current assets 133,368 152,727
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Total current assets 1,115,743 1,631,639
Noncurrent investments in marketable debt securities 719,924 360,069
Property, plant, equipment, and leasehold improvements, at cost:
Land and buildings 162,487 141,452
Laboratory, production, and office equipment 236,758 236,803
Leasehold improvements 70,844 84,607
Construction-in-progress 56,000 38,328
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526,089 501,190
Less accumulated depreciation and amortization (208,588) (197,812)
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Net property, plant, equipment, and leasehold improvements 317,501 303,378
Purchased technology, net 13,848 14,753
Other intangible assets, net 152,864 166,699
Investments in equity securities and affiliated companies 25,554 27,456
Other assets 27,906 20,261
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$ 2,373,340 $ 2,524,255
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,229 $ 44,999
Accrued compensation and related expenses 39,668 40,034
Short-term borrowings 22,027 17,554
Note payable to Novartis 65,101 63,945
Current portion of unearned revenue 38,175 41,893
Taxes payable 28,783 180,088
Other current liabilities 163,487 168,905
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Total current liabilities 385,470 557,418
Long-term debt 339,259 338,158
Other noncurrent liabilities 76,343 82,877
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Total liabilities 801,072 978,453
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Commitments and contingencies
Stockholders' equity:
Common stock 1,815 1,799
Additional paid-in capital 2,005,620 1,979,615
Accumulated deficit (419,368) (437,873)
Accumulated other comprehensive (loss) income (15,244) 2,261
Treasury stock, at cost (25,000 shares) (555) --
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Total stockholders' equity 1,572,268 1,545,802
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$ 2,373,340 $ 2,524,255
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</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
MARCH 31,
-------------------------------
1999 1998
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<S> <C> <C>
Revenues:
Product sales, net $ 92,967 $ 69,220
Equity in earnings of unconsolidated joint businesses 18,086 12,874
Collaborative agreement revenues 22,425 24,400
Royalty and license fee revenues 32,433 16,074
Other revenues 9,649 10,719
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Total revenues 175,560 133,287
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Expenses:
Cost of sales 44,073 28,077
Research and development 69,115 63,907
Selling, general, and administrative 40,544 23,707
Restructuring and reorganization charges (Note 3) 3,352 7,548
Other operating expenses 3,216 656
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Total expenses 160,300 123,895
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Income from operations 15,260 9,392
Interest expense (6,071) (6,580)
Other income, net 22,559 8,595
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Income from continuing operations before income taxes 31,748 11,407
Provision for income taxes 8,010 3,865
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Income from continuing operations 23,738 7,542
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Discontinued operations (Note 2):
Loss from discontinued operations -- (18,393)
Gain on disposal of discontinued operations -- 65,332
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Net income $ 23,738 $ 54,481
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Basic earnings per common share:
Income from continuing operations $ 0.13 $ 0.04
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Net income $ 0.13 $ 0.31
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Diluted earnings per common share:
Income from continuing operations $ 0.13 $ 0.04
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Net income $ 0.13 $ 0.30
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</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
MARCH 31,
-------------------------------
1999 1998
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<S> <C> <C>
Net income $ 23,738 $ 54,481
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Other comprehensive (loss) income:
Foreign currency translation adjustment:
Change in foreign currency translation adjustment during the
period (14,365) (326)
Plus: reclassification adjustment for loss included in discontinued
operations -- 2,087
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Net foreign currency translation adjustment (14,365) 1,761
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Unrealized (loss) gain from investments:
Unrealized holding (loss) gain arising during the period (1,726) 2,246
Less: reclassification adjustment for net gains included in net income,
net of income tax benefits of $795 and $1,014 for the three months
ended March 31, 1999 and 1998, respectively (1,414) (1,800)
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Net unrealized (loss) gain from investments (3,140) 446
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Other comprehensive (loss) income (17,505) 2,207
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Comprehensive income $ 6,233 $ 56,688
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</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>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1999 1998
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<S> <C> <C>
Net cash used in operating activities $ (130,274) $ (638)
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Cash flows from investing activities:
Purchases of investments in marketable debt securities (701,195) (165,197)
Proceeds from sale and maturity of investments in marketable debt securities 412,142 54,249
Capital expenditures (33,889) (10,896)
Proceeds from disposal of discontinued operations -- 298,939
Other, net (18,604) 101
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Net cash (used in) provided by investing activities (341,546) 177,196
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Cash flows from financing activities:
Net proceeds (repayment) of short-term debt 1,024 (114,483)
Repayment of notes payable and capital leases (887) (308)
Proceeds from issuance of common stock 28,069 17,340
Payments to acquire treasury stock (555) --
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Net cash provided by (used in) financing activities 27,651 (97,451)
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Net (decrease) increase in cash and cash equivalents (444,169) 79,107
Cash and cash equivalents at beginning of the period 513,315 98,483
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Cash and cash equivalents at end of the period $ 69,146 $ 177,590
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</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
MARCH 31, 1999
(UNAUDITED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information presented in the accompanying Condensed Consolidated
Financial Statements at March 31, 1999, and for the three months ended March
31, 1999 and 1998, 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. In addition, certain previously reported amounts have been
reclassified to conform to the current period presentation. The condensed
consolidated balance sheet amounts at December 31, 1998 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 January 3, 1999, 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
ophthalmics business ("Chiron Vision") to Bausch & Lomb Incorporated ("B&L")
and in the fourth quarter of 1998, Chiron completed the sale of its IN VITRO
diagnostics business ("Chiron Diagnostics") to Bayer Corporation ("Bayer")
(see Note 2). The accompanying Condensed Consolidated Statements of
Operations for the three months ended March 31, 1998 reflect the after-tax
results of Chiron Diagnostics and the gain on disposal of Chiron Vision as
discontinued operations.
On March 31, 1998, in an acquisition accounted for under the purchase
method of accounting, Chiron acquired the remaining 51% interest in Chiron
Behring GmbH & Co ("Chiron Behring") from Hoechst AG. Beginning in the second
quarter of 1998, the results of Chiron Behring were consolidated with those of
the Company.
Prior to January 1999, the results of Chiron's Italian subsidiary ("Chiron
S.p.A.") were reported on a one-month lag. In the first quarter of 1999, Chiron
S.p.A. was brought current. As a result, during the first quarter of 1999, the
Company recorded a loss of approximately $5.2 million for the month of December
1998 as a component of "Accumulated deficit" in the accompanying Condensed
Consolidated Balance Sheets.
FISCAL YEAR
Effective with the beginning of fiscal year 1999, the Company changed
its fiscal year from a 52 or 53-week year ending on the Sunday nearest the
last day in December to coincide with a calendar year ending on December 31.
In 1998, the Company's fiscal year was a 53-week year ending on January 3,
1999 and the first fiscal quarter of 1998 was a 13-week period ending on
March 29, 1998. For presentation purposes, the 1998 dates used in the
condensed consolidated financial statements and notes 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. Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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(IN THOUSANDS)
<S> <C> <C>
Finished goods $ 25,792 $ 12,301
Work-in-process 39,189 54,333
Raw materials 15,861 13,235
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$ 80,842 $ 79,869
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</TABLE>
7
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The 1999 estimated annual tax provision is expected to be approximately 25%
of pretax income from continuing operations. 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.
Income tax expense for the three months ended March 31, 1998 was based on an
estimated annual effective tax rate on pretax income from continuing operations
of approximately 34%. The actual 1998 annual effective tax rate of 20% reflects
the deferred tax assets that were recognized during the second half of 1998
through a reduction in the valuation allowance associated with such assets.
PER SHARE DATA
Basic earnings per share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares result from (i) the assumed
exercise of outstanding stock options, warrants, and equivalents, which are
included under the treasury-stock method; and (ii) performance units to the
extent that dilutive shares are assumed issuable.
The following table sets forth the computation for basic and diluted
earnings per share for the three months ended March 31:
<TABLE>
<CAPTION>
1999 1998
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(IN THOUSANDS)
<S> <C> <C>
Weighted-average common shares outstanding 180,639 176,199
Effect of dilutive securities:
Options and equivalents 4,160 2,820
Warrants 255 189
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Weighted-average common shares outstanding plus
assumed conversions 185,054 179,208
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</TABLE>
Options to purchase 1,380,000 shares and 13,189,000 shares with exercise
prices greater than the average market prices of common stock were outstanding
during the three months ended March 31, 1999 and 1998, respectively. These
options were excluded from the respective computations of diluted earnings per
share as their inclusion would be antidilutive.
Also excluded from the computations of dilutive earnings per share were
12,026,000 shares of common stock issuable upon conversion of the Company's
convertible subordinated debentures as the average conversion price was greater
than the average market price for the three months ended March 31, 1999 and
1998.
NOTE 2--DISCONTINUED OPERATIONS
On November 30, 1998, Chiron completed the sale of its IN VITRO
diagnostics business to Bayer for $1,013.8 million in cash, subject to
certain post-closing adjustments. The sale was completed under the terms of a
Stock Purchase Agreement (the "Bayer Agreement"), dated as of September 17,
1998, between Chiron and Bayer. 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" ("APB 30"), Chiron
Diagnostics is reported as a discontinued operation for
8
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)
the three months ended March 31, 1998 in the accompanying Condensed Consolidated
Statements of Operations. Chiron has agreed to provide customary indemnities
under the terms of the Bayer Agreement.
On December 29, 1997, Chiron completed the sale of all of the outstanding
capital stock of Chiron Vision to 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 (the "B&L 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 Vision's
future noncancelable operating lease costs totaling $1.1 million were retained
by the Company upon the completion of the sale. The Company has
agreed to provide customary indemnities under the terms of the B&L 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 March 31, 1999 and December 31,
1998, the real estate assets, which represent all of the remaining net assets of
Chiron's discontinued operations, are recorded in the accompanying Condensed
Consolidated Balance Sheets as "Other current assets." In the first quarter of
1998, the Company recorded an adjustment to record the real estate
assets at their estimated fair value, determined on the basis of independent
appraisals, less costs 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 period ended March 31, 1998.
In the first quarter of 1998, Chiron Diagnostics recognized total revenues
of $135.6 million. For the three months ended March 31, 1998, "Loss from
discontinued operations" and "Gain on disposal of discontinued operations" are
reported net of income tax (benefit) provision of ($1.1) million and $31.2
million, respectively.
For the three months ended March 31, 1998, basic and diluted income per
common share from discontinued operations were $0.27 and $0.26, respectively.
NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES
In the first quarter of 1999, the Company recorded restructuring and
reorganization charges of $3.4 million primarily related to the continued
integration of its worldwide vaccine operations. These charges primarily
consisted of termination and other employee-related costs recognized in
connection with the elimination of 28 positions in the Company's Italian
manufacturing facility. Six of these positions had been eliminated as of March
31, 1999.
In fiscal year 1998, the Company recorded restructuring and
reorganization charges of $26.8 million, of which $7.5 million was recognized
in the first quarter. These charges consisted primarily of termination and
other employee-related expenses recognized in connection with the elimination
of 400 positions in manufacturing, research and development, sales,
marketing, and other administrative functions, and facility-related costs. As
of March 31, 1999, 249 of these 400 employees had been terminated.
At March 31, 1999 and December 31, 1998, the liabilities associated with
the Company's restructuring and reorganization charges were $18.0 million and
$23.8 million, respectively. These liabilities are expected to be substantially
settled within 12 months of accruing the related charges.
9
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CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 4--AGREEMENT WITH HOECHST AG
Effective July 1, 1996, Chiron purchased a 49% interest in the human
vaccine business of Behringwerke AG, which subsequently merged into its
parent company, Hoechst AG. The total acquisition price, which was paid in
cash, was approximately $120.0 million, including costs directly related to
the acquisition. Of the total acquisition price, approximately $97.0 million
was allocated to various intangible assets such as goodwill, trademarks, and
patents, and is being amortized on a straight-line basis over lives ranging
from five to 20 years.
From July 1, 1996 through March 31, 1998 (period of joint ownership),
Chiron and Hoechst AG operated the vaccine business as a joint venture under the
name Chiron Behring GmbH & Co. Chiron accounted for its 49% interest under the
equity method and recognized revenues of $2.4 million as a component of "Equity
in earnings of unconsolidated joint businesses" in the accompanying Condensed
Consolidated Statements of Operations for the three months ended March 31, 1998.
In the second quarter of 1998, in an acquisition accounted for under the
purchase method of accounting, Chiron acquired the remaining 51% interest in
Chiron Behring from Hoechst AG. The purchase price of approximately $113.1
million, including acquisition costs, was allocated to the acquired assets and
liabilities assumed based upon their estimated fair value on the date of
acquisition. In connection with the acquisition, liabilities assumed were 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)
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Liabilities assumed $ 33,815
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-------------
</TABLE>
At the time of acquisition, Chiron expensed $1.6 million of purchased
in-process technologies. 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 four to 17 years on
a straight-line basis. Chiron Behring's operating results 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
March 31, 1998 with pro forma adjustments as if Chiron's acquisition of the
remaining 51% interest in Chiron Behring had been consummated as of January 1,
1998. The pro forma information does not purport to be indicative of what would
have occurred had the acquisition been made as of that date or of results that
may occur in the future. The unaudited pro forma information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Total revenues $ 167,248
Income from continuing operations $ 13,537
Pro forma income per share from continuing operations:
Basic $ 0.08
Diluted $ 0.08
</TABLE>
10
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 5--SEGMENT INFORMATION
Chiron is organized based on the products and services that it offers.
Under this organizational structure, the Company has the following three
reportable segments: (i) biopharmaceuticals, (ii) vaccines, and (iii) blood
testing. The biopharmaceuticals segment consists of products and services
related to therapeutics, with an emphasis on oncology, serious infectious
diseases, and cardiovascular diseases as well as the development and
acquisition of technologies related to recombinant technology, gene therapy,
small molecule therapeutics, and genomics. The vaccines segment consists
principally of products and services related to adult and pediatric vaccines
sold primarily in Germany, Italy, and certain other international markets.
The blood testing segment consists primarily of Chiron's one-half interest in
the pretax operating earnings of its joint business with Ortho-Clinical
Diagnostics, Inc. 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. Certain revenues and expenses, particularly
Novartis research and development funding, certain royalty revenues, and
unallocated corporate expenses, are not viewed by management as belonging to
any one reportable segment. As a result, these items have been aggregated
into an "Other" segment, as permitted by Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131").
The accounting policies of the Company's reportable segments are the same
as those described in Note 1--The Company and Summary of Significant Accounting
Policies. Chiron evaluates the performance of its segments based on each
segment's income (loss) from operations, excluding certain special items, such
as restructuring and reorganization charges, which are shown as reconciling
items in the table below. The following segment information excludes all
significant intersegment transactions as these transactions are eliminated for
management reporting purposes:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
REVENUES
Biopharmaceuticals $ 67,741 $ 83,285
Vaccines, includes $243 and $1,436 of equity
in earnings of unconsolidated joint
businesses for the three months ended
March 31, 1999 and 1998, respectively 56,473 16,845
Blood testing, includes $17,843 and $11,438
million of equity in earnings of unconsolidated
joint businesses for the three months ended
March 31, 1999 and 1998, respectively 24,630 17,157
Other 26,716 16,000
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Total revenues $ 175,560 $ 133,287
----------- ----------
----------- ----------
</TABLE>
11
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 5--SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS
Biopharmaceuticals $ (4,692) $ 15,929
Vaccines (6,308) (14,515)
Blood testing 14,515 10,588
Other 15,097 4,938
----------- ----------
Segment income from operations 18,612 16,940
Reconciling items:
Restructuring and reorganization charges (3,352) (7,548)
----------- -----------
Income from operations 15,260 9,392
Interest expense (6,071) (6,580)
Other income, net 22,559 8,595
----------- ----------
Income from continuing operations
before income taxes $ 31,748 $ 11,407
----------- ----------
----------- ----------
</TABLE>
NOTE 6--CONTINGENCIES
The Company is party to various claims, investigations, and legal
proceedings arising in the ordinary course of business. These claims,
investigations, and legal proceedings relate to intellectual property rights,
contractual rights and obligations, employment matters, claims of product
liability, and other issues. While there is no assurance that an adverse
determination of any of 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.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS REPORT REFLECT MANAGEMENT'S CURRENT BELIEFS AND EXPECTATIONS
ON THE DATE OF THIS REPORT. ACTUAL RESULTS, PERFORMANCE OR OUTCOMES MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS. SOME OF THE
IMPORTANT FACTORS WHICH, IN THE VIEW OF CHIRON CORPORATION ("CHIRON" OR THE
"COMPANY"), COULD CAUSE ACTUAL RESULTS TO DIFFER ARE DISCUSSED UNDER THE CAPTION
"FACTORS THAT MAY AFFECT FUTURE RESULTS." 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
THEREOF.
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 JANUARY 3, 1999.
Chiron is a biotechnology company that participates in three global
healthcare businesses: biopharmaceuticals, vaccines, and blood testing. The
biopharmaceuticals segment consists of products and services related to
therapeutics, with an emphasis on oncology, serious infectious diseases, and
cardiovascular diseases as well as the development and acquisition of
technologies related to recombinant technology, gene therapy, small molecule
therapeutics, and genomics. The vaccines segment consists principally of
adult and pediatric vaccines sold primarily in Germany, Italy, and certain
other international markets. The blood testing segment primarily
consists of Chiron's one-half interest in the pretax operating earnings of
its joint 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.
On December 29, 1997, Chiron completed the sale of its ophthalmics
business ("Chiron Vision") to Bausch & Lomb Incorporated ("B&L") and on
November 30, 1998, Chiron completed the sale of its IN VITRO diagnostics
business ("Chiron Diagnostics") to Bayer Corporation ("Bayer"). The Company's
condensed consolidated statements of operations reflect the after-tax results
of Chiron Diagnostics and the gain on disposal of Chiron Vision as
discontinued operations for the three months ended March 31, 1998.
On March 31, 1998, in an acquisition accounted for under the purchase
method of accounting, Chiron acquired the remaining 51% interest in Chiron
Behring GmbH & Co ("Chiron Behring") from Hoechst AG. Beginning in the second
quarter of 1998, the results of Chiron Behring were consolidated with those of
the Company.
RESULTS OF OPERATIONS
REVENUES
BIOPHARMACEUTICAL PRODUCT SALES Product sales from the
biopharmaceuticals segment were $43.1 million and $50.3 million for the three
months ended March 31, 1999 and 1998, respectively. Product sales consisted
principally of Proleukin-Registered Trademark- (aldesleukin, interleukin-2),
Betaseron-Registered Trademark- (interferon beta-1b) and PDGF (recombinant
human platelet-derived growth factor -rhPDGF-BB).
PROLEUKIN-Registered Trademark- Chiron sells Proleukin-Registered
Trademark- directly in the U.S. and certain international markets. Sales of
Proleukin-Registered Trademark- were $25.9 million and $20.9 million for the
three months ended March 31, 1999 and 1998, respectively. The overall
increase in sales is primarily due to continued volume growth in existing
indications and higher prices. Also impacting
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the increase in Proleukin-Registered Trademark- product sales was the Food
and Drug Administration's ("FDA's") approval of Proleukin-Registered
Trademark- for the indication of metastatic melanoma during the first quarter
of 1998. The Company continues to pursue additional indications related to
human immunodeficiency virus ("HIV"), acute myelogenous leukemia, and HIV
related non-Hodgkin's lymphoma. The Company also anticipates further
geographic expansion of Proleukin-Registered Trademark- into additional
countries.
BETASERON-Registered Trademark- Chiron manufactures
Betaseron-Registered Trademark- for Berlex Laboratories, Inc. ("Berlex") and
its parent company, Schering AG of Germany. Chiron earns a partial payment
for Betaseron-Registered Trademark- upon shipment to Berlex and Schering AG
and a subsequent additional payment upon sales by Berlex and Schering AG.
Accordingly, Chiron's revenues from Betaseron-Registered Trademark- tend to
fluctuate based upon the inventory management practices of Berlex and
Schering AG. For the three months ended March 31, 1999 and 1998, revenues
from Betaseron-Registered Trademark- remained fairly constant at $14.6
million and $14.1 million, respectively.
PDGF Chiron manufactures PDGF for Ortho-McNeil Pharmaceutical, Inc., a
Johnson & Johnson ("J&J") company. PDGF is the active ingredient in
Regranex-Registered Trademark-(becaplermin) Gel, a treatment for diabetic
foot ulcers. Regranex-Registered Trademark- Gel was approved by the FDA in
December 1997 and was launched commercially in early 1998. Sales of PDGF were
$0.5 million and $13.3 million for the three months ended March 31, 1999 and
1998, respectively. As PDGF is the first product of its kind, the Company
believes it will take time for the market to fully develop. In addition,
Chiron's sales of PDGF will tend to fluctuate based upon the inventory
management practices of J&J. Regranex-Registered Trademark- Gel was recently
approved for use in the treatment of diabetic foot ulcers in Canada and
Europe. However, even with these approvals, Chiron's sales to date have
largely filled J&J's initial inventory requirements for product launch, and
as a result, no significant sales of PDGF to J&J are expected during 1999.
VACCINE PRODUCT SALES Chiron sells pediatric and adult vaccines in
Germany, Italy, other international markets, and in the U.S. Certain of the
Company's vaccine products, particularly its flu vaccine, are seasonal and
typically have higher sales in the third and fourth quarters of the year. For
the three months ended March 31, 1999 and 1998, vaccine product sales were
$44.5 million and $14.5 million, respectively. The increase in sales in 1999
as compared with 1998 is primarily due to Chiron's acquisition of the
remaining 51% interest in, and consolidation of, Chiron Behring during the
second quarter of 1998. Chiron Behring contributed $25.4 million to product
sales during the first quarter of 1999. Also contributing to the increase in
product sales was a $4.2 million sale of adult influenza vaccine to Argentina.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT BUSINESSES For the three
months ended March 31, 1999 and 1998, Chiron recognized equity in earnings of
unconsolidated joint businesses of $18.1 million and $12.9 million,
respectively. In 1999, equity in earnings of unconsolidated joint businesses
consisted substantially of revenues generated by Chiron's joint business with
Ortho. In 1998, equity in earnings of unconsolidated joint businesses also
included Chiron's 49% share of the after-tax operating results of Chiron
Behring.
CHIRON-ORTHO JOINT BUSINESS For the three months ended March 31, 1999
and 1998, Chiron's 50% share of the pretax operating earnings of the
Chiron-Ortho joint business was $17.8 million and $11.4 million,
respectively. At the end of each year, the joint business records an annual
inventory adjustment. As Chiron recognizes revenues from the joint business
on a lag basis, this adjustment is typically made during the first quarter of
each year. In the first quarter of 1999, the annual inventory adjustment
resulted in a charge of $0.7 million as compared with a $4.1 million charge
recognized in the first quarter of 1998. Also contributing to the increase in
earnings in 1999 as compared with 1998, were certain one-time contract
termination fees, which were incurred during the first quarter of 1998.
CHIRON BEHRING On July 1, 1996, Chiron acquired a 49% interest in
Chiron Behring. On March 31, 1998, Chiron acquired the remaining 51% interest
in Chiron Behring (refer to Note 4 of NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS). From July 1, 1996 through the first quarter of 1998,
equity in earnings of unconsolidated joint businesses included Chiron's 49%
share of the after-tax operating results of Chiron Behring. Chiron's share of
earnings of the joint business, including amortization of intangibles, was
$2.4 million for the three months ended March 31, 1998. Beginning in the
second quarter of 1998, Chiron Behring's results were consolidated with those
of the Company.
COLLABORATIVE AGREEMENT REVENUES Chiron recognizes collaborative
agreement revenues for fees received for research services as they are
performed and fees received upon achievement of specified milestones. For the
three
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months ended March 31, 1999 and 1998, Chiron recognized collaborative
agreement revenues of $22.4 million and $24.4 million, respectively. The
decrease is primarily due to a contractual decrease in payments received by
the Company under a November 1996 consent agreement between Chiron,
Novartis AG ("Novartis"), and the Federal Trade Commission related to the
Herpes Simplex Virus-thymidine kinase (HSV-tk) gene in the field of gene
therapy (for more information, refer to the Company's Annual Report on
Form 10-K for the year ended January 3, 1999).
Chiron and Novartis entered into an agreement, which expires on
December 31, 1999, under which Novartis agreed to provide research funding
for certain projects (for more information, refer to the Company's Annual
Report on Form 10-K for the year ended January 3, 1999). Under this
agreement, Chiron recognized collaborative agreement revenues of $16.0
million during the first quarters of 1999 and 1998.
Collaborative agreement revenues tend to fluctuate based on the amount
of research services performed, the status of projects under collaboration,
and the achievement of milestones. Due to the nature of the Company's
collaborative agreement revenue, results in any one period are not
necessarily indicative of results to be achieved in the future. The Company's
ability to generate additional collaborative agreement revenues may depend,
in part, on its ability to initiate and maintain relationships with potential
and current collaborative partners. There can be no assurance that such
relationships will be established or that current collaborative agreement
revenues will not decline.
ROYALTY AND LICENSE FEE REVENUES The Company receives royalties and
license fees for products or technologies that are marketed, distributed, or
used by third parties. For the three months ended March 31, 1999 and 1998,
Chiron recognized royalty and license fee revenues of $32.4 million and $16.1
million, respectively. The increase is primarily due to the Bayer
Cross-License Agreement whereby Chiron agreed to grant to Chiron Diagnostics
rights under certain Chiron patents, including rights under patents relating
to HIV and hepatitis C virus. In exchange for these rights, Chiron
Diagnostics paid to Chiron a license fee of $100.0 million, which is
refundable in decreasing amounts over a period of three years. During the
first quarter of 1999, Chiron recognized $10.0 million of license fees, which
represents the portion of the $100.0 million payment that became
nonrefundable during the period. Other items contributing to royalty and
license fee revenues in the first quarter of 1999 were $7.1 million of
royalties related to insulin products, $3.4 million of royalties earned by
Chiron Behring, and $2.1 million of royalties related to human vaccine
products. Partially offsetting these items was a decrease of $5.0 million
related to a one-time license fee received from Pharmacia & Upjohn Company in
January 1998 to research, develop, manufacture, and commercialize therapeutic
products for the treatment of hepatitis C in humans.
Royalty and license fee revenues may fluctuate based on the nature of
the related agreements and the timing of receipt of license fees. Results in
any one period are not necessarily indicative of results to be achieved in
the future. In addition, the Company's ability to generate additional royalty
and license fee revenues may depend, in part, on its ability to market and
capitalize on its technologies. There can be no assurance that the Company
will be able to do so or that future royalty and license fee revenues will
not decline.
OTHER REVENUES For the three months ended March 31, 1999 and 1998,
Chiron recognized other revenues of $9.6 million and $10.7 million,
respectively. Other revenues in the first quarter of 1999 included $5.0
million of commission revenues generated by Chiron Behring, whose operations
were consolidated with those of the Company beginning in the second quarter
of 1998. These revenues consist of commissions received on sales of hepatitis
B products and of immunoglobuline products. For the three months ended March
31, 1999 and 1998, other revenues also included $2.6 million and $0.4
million, respectively, of contract manufacturing revenues. These increases in
other revenues were offset by a decrease of $9.2 million related to an
arrangement which terminated in April 1998 where Chiron promoted
Aredia-Registered Trademark- (pamidronate disodium for injection) on behalf
of Novartis.
The Company's other revenues may fluctuate due to the nature of the
revenues recognized and the timing of events giving rise to these revenues.
There can be no guarantee that the Company will be successful in obtaining
additional revenues or that these revenues will not decline.
COSTS AND EXPENSES
GROSS PROFIT Gross profit as a percentage of net product sales was
52.6% and 59.4%, in the first quarter of 1999 and 1998, respectively. The
decrease is primarily related to (i) an unfavorable mix of vaccine product
sales, which beginning in the second quarter of 1998, includes low margin
products that are in-licensed and sold by Chiron Behring; (ii) certain
inventory-related charges incurred by the Company's Italian vaccine
operations related to inventory obsolescence reserves and inventory
write-offs; and (iii) an unfavorable mix of biopharmaceutical product sales,
which includes fewer sales of the higher margin product, PDGF. These
decreases were partially offset by (i) improvements in the gross margins
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related to Betaseron-Registered Trademark- due to a reduction in idle
facility costs and certain manufacturing efficiencies resulting from
increased production; and (ii) recent price increases on sales of
Proleukin-Registered Trademark-.
Also impacting the Company's gross profit margin during the first
quarter of 1999 was the write-off of a portion of the Company's tick-borne
encephalitis inventory that failed to satisfy manufacturing specifications
for purity. The Company subsequently retested all remaining tick-borne
encephalitis inventory and found it to meet specifications. The Company has
since received approval from the relevant regulatory authority and is
selling the product. The total charge that related to this issue was $3.1
million.
The Company's gross profit percentages may fluctuate significantly in
future periods as the Company's product mix continues to evolve.
RESEARCH AND DEVELOPMENT For the three months ended March 31, 1999 and
1998, Chiron recognized research and development expenses of $69.1 million
and $63.9 million, respectively. The Company's research and development
expenses may fluctuate from period to period depending upon the stage of
certain projects and the level of clinical trial-related activities. In 1999,
the increase in research and development spending as compared with 1998 was
due, in part, to the acquisition and consolidation of Chiron Behring, which
contributed $2.8 million to research and development expenses during the
first quarter of 1999. Also contributing to the increase in research and
development expenses was the furtherance of the Company's clinical trials
related to Tissue Factor Pathway Inhibitor (TFPI) and Fibroblast Growth
Factor (FGF).
SELLING, GENERAL AND ADMINISTRATIVE In the first quarters of 1999 and
1998, Chiron recognized selling, general and administrative ("SG&A") expenses
of $40.5 million and $23.7 million, respectively. The increase in SG&A
expenses in 1999 as compared with 1998 is primarily due to the acquisition
and consolidation of Chiron Behring, which contributed $10.2 million to SG&A
expenses in the first quarter of 1999. SG&A expenses also increased as a
result of the Company's focus on developing and launching the nucleic acid
testing segment of its blood testing business and to the worldwide
implementation of its integrated information system in April 1999.
OTHER OPERATING EXPENSES During the first quarters of 1999 and 1998,
Chiron incurred net restructuring and reorganization charges of $3.4 million
and $7.5 million, respectively, related to the integration of the Company's
worldwide vaccine operations and the Company's ongoing rationalization of its
U.S. business operations. The 1999 first-quarter charge primarily consisted
of termination and other employee-related costs recognized in connection with
the elimination of 28 positions in the Company's Italian manufacturing
facility. Six of these positions had been eliminated as of March 31, 1999. In
fiscal year 1998, the Company had recorded restructuring and reorganization
charges of $26.8 million of which $7.5 million were recognized in the first
quarter. Major components of these charges consisted primarily of
facility-related exit costs and termination and other employee-related
expenses in connection with the elimination of 400 positions. As of March 31,
1999, 249 of these 400 employees had been terminated.
NON-OPERATING INCOME AND EXPENSE
Other income, net, primarily consists of interest and investment income
on the Company's cash and investment balances and other non-operating gains
and losses. For the three months ended March 31, 1999 and 1998, Chiron
recognized interest and investment income of $20.3 million and $6.4 million,
respectively. The increase in interest and investment income in 1999 as
compared with 1998 is primarily due to higher average cash and investment
balances attributable to the net cash proceeds received from the sale of
Chiron Diagnostics in November 1998. Interest expense remained fairly
constant at $6.1 million and $6.6 million for the three months ended March
31, 1999 and 1998, respectively.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 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
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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 is currently evaluating the effect that
implementation of SFAS 133 will have on its results of operations and
financial position and anticipates that it will implement SFAS 133 during the
first fiscal quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Chiron's capital requirements have generally been funded from
operations, cash and investments on hand, debt borrowings, issuance of common
stock, and off-balance sheet financing. Chiron's cash and investments in
marketable debt securities, which totaled $1.4 billion at March 31, 1999, 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;
however, these investments are generally not collateralized and primarily
mature within three years.
SOURCES AND USES OF CASH Chiron had cash and cash equivalents of $69.1
million and $177.6 million at March 31, 1999 and 1998, respectively. For the
first quarter of 1999, net cash used in operating activities was $130.3
million as compared with $0.6 million in 1998. In the first quarter of 1999,
the Company paid $165.4 million in estimated taxes primarily related to the
sale of the Company's IN VITRO diagnostics business. This use of cash was
partially offset by net income of $23.7 million for the three months ended
March 31, 1999.
In the first quarter 1999, net cash used in investing activities
consisted of purchases of investments in marketable debt securities of $701.2
million, capital expenditures of $33.9 million, and other uses of cash of
$18.6 million. Partially offsetting these uses of cash were proceeds from the
sale and maturity of investments in marketable debt securities of $412.1
million.
In the first quarter of 1999, net cash provided by financing activities
primarily consisted of $28.1 million from the issuance of common stock
related to stock option exercises and $1.0 million related to short-term
borrowings. This was partially offset by $0.9 million related to the
repayment of certain notes payable and short-term leases, and $0.6 million
related to the acquisition of treasury stock.
The Company is currently evaluating a number of business development
opportunities. To the extent that the Company is successful in reaching
agreements with third parties, these transactions may involve the expenditure
of a significant amount of the Company's current investment portfolio.
BORROWING ARRANGEMENTS Under a revolving, committed, unsecured credit
agreement with a major financial institution, Chiron can borrow up to $100.0
million in the U.S. This credit facility is guaranteed by Novartis, provides
various interest rate options, and matures in February 2003. There were no
borrowings outstanding under this credit facility at March 31, 1999. The
Company had an additional credit agreement, which expired unused in March
1999. Chiron also has credit facilities outside the U.S. which allow for
total borrowings of $63.1 million. Under these credit facilities, $20.6
million of borrowings were outstanding at March 31, 1999.
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 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 has completed its
technology refresh program which was developed in conjunction with
International Business Machines, Inc. ("IBM") to update and standardize the
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Company's computer hardware and communication systems. With regard to the
Company's software applications, the Company has identified critical and
non-critical software applications. Mission critical applications have been
remediated. Non-critical applications are in progress and are targeted for
completion prior to September 1999. The Company has completed testing and
installation of an integrated information system that was implemented across
the Company on April 5, 1999. With regard to the Company's facilities and
other non-information technology-related functions, including research,
manufacturing, and inventory management practices, the Company is on schedule
and expects to have its facilities and other non-information
technology-related functions Year 2000 compliant by mid-1999 for critical
functions and September 1999 for non-critical functions, in all material
respects.
The Company is using both internal and external resources to prepare for
the year 2000. Although 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, 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 is assessing and attempting 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.
The Company is also preparing to address any Year 2000 issues that do
arise. The Company is implementing 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. To address the
manufacturing shutdown scenario, the Company plans, among other things, to
increase its inventory and re-prioritize staff assignments, as needed, but
does not believe that such a scenario is likely to occur.
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. Expenses associated with preparing for the year 2000 are
not expected to exceed $5.5 million. The costs related to 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. As of March 31, 1999,
costs incurred to date have been funded through operations and approximate
$1.4 million. The Company anticipates that most of its Year 2000 costs will
be incurred during the first three quarters of 1999. These costs are
anticipated to be funded with cash on hand and cash generated through
operations.
EURO CONVERSION On January 1, 1999, eleven European Union member
countries established fixed conversion rates between their existing
currencies ("legacy currencies") and one common currency, the Euro. The Euro
is currently traded on currency exchanges and can be used in business
transactions. The Company believes that its financial systems are Euro-ready
in all material respects. However, the Company is still in the process of
evaluating the effect, if any, of the Euro on the Company's product pricing
and gross profit percentages.
FACTORS THAT MAY AFFECT FUTURE RESULTS
As a biotechnology company, Chiron is engaged in a rapidly evolving and
often unpredictable business. The forward-looking statements contained in
this Report and in other periodic reports, press releases and other
statements issued by the Company from time to time reflect management's
current beliefs and expectations concerning objectives, plans, strategies,
future performance, and other future events. The following discussion
highlights some of the factors, many of which are beyond the Company's
control, which could cause actual results to differ.
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PROMISING TECHNOLOGIES ULTIMATELY MAY NOT PROVE SUCCESSFUL
The Company focuses its research and development activities on areas in
which it has particular strengths, and on technologies that appear promising.
These technologies often are on the "cutting edge" of modern science. As a
result, the outcome of any research or development program is highly
uncertain. Only a very small fraction of such programs ultimately result in
commercial products or even product candidates. Product candidates that
initially appear promising often fail to yield successful products. In many
cases, preclinical or clinical studies will show that a product candidate is
not efficacious (that is, it does not have the intended therapeutic or
prophylactic effect), or that it raises safety concerns or has other side
effects which outweigh the intended benefit. Success in preclinical or early
clinical trials (which generally focus on safety issues) may not translate
into success in large-scale clinical trials (which are designed to show
efficacy), often for reasons that are not fully understood. And even after a
product is approved and launched, general usage or post-marketing studies may
identify safety or other previously unknown problems with the product which
may result in regulatory approvals being suspended, limited to narrow
indications, or revoked, or which otherwise prevent successful
commercialization.
REGULATORY APPROVALS
The Company is required to obtain and maintain regulatory approval in
order to market most of its products. Generally, these approvals are on a
product-by-product and country-by-country basis, and, in the case of
therapeutic products, a separate approval is required for each therapeutic
indication. See Item 1., "Business--Government Regulation" in the Company's
Annual Report on Form 10-K for the year ended January 3, 1999. Product
candidates that appear promising based on early, and even large-scale,
clinical trials may not receive regulatory approval. The results of clinical
trials often are susceptible to varying interpretations that may delay, limit
or prevent approval or result in the need for post-marketing studies.
MANUFACTURING
Most of the Company's products are biologics. Manufacturing biologic
products is complex. Unlike chemical pharmaceuticals, a biologic product
generally cannot be sufficiently characterized (in terms of its physical and
chemical properties) to rely on assaying of the finished product alone to
ensure that the product will perform in the intended manner. Accordingly, it
is essential to be able to both validate and control the manufacturing
process: that is, to show that the process works, and that the product is
made strictly and consistently in compliance with that process. Slight
deviations in the manufacturing process may result in unacceptable changes in
the products which may result in lot failures. Manufacturing processes which
are used to produce the (smaller) quantities of material needed for research
and development purposes may not be successfully scaled up to allow
production of commercial quantities at reasonable cost or at all. All of
these difficulties are compounded when dealing with novel biologic products
that require novel manufacturing processes. Accordingly, manufacturing is
subject to extensive government regulation. Even minor changes in the
manufacturing process require regulatory approval, which, in turn, may
require further clinical studies.
PATENTS HELD BY THIRD PARTIES MAY DELAY OR PREVENT COMMERCIALIZATION
Third parties, including competitors, have patents and patent
applications in the U.S. and other significant markets that may be useful or
necessary for the manufacture, use, or sale of certain of the Company's
products and products in development. It is likely that third parties will
obtain other such patents in the future. Certain of these patents may be
sufficiently broad to prevent or delay Chiron from manufacturing or marketing
products important to the Company's current and future business. The scope,
validity, and enforceability of such patents, if granted, the extent to which
Chiron may wish or need to obtain licenses to such patents, and the cost and
availability of such licenses cannot be accurately predicted. If Chiron does
not obtain such licenses, products may be withdrawn from the market or delays
could be encountered in market introduction while an attempt is made to
design around such patents. Alternatively, Chiron could find that the
development, manufacture, or sale of such products is foreclosed. Chiron could
also incur substantial costs in challenging the validity and scope of such
patents.
PRODUCT ACCEPTANCE
The Company may experience difficulties in launching new products, many
of which are novel products based on
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technologies that are unfamiliar to the healthcare community. There can be no
assurance that healthcare providers and patients will accept such products.
In addition, government agencies as well as private organizations involved in
healthcare from time to time publish guidelines or recommendations to
healthcare providers and patients. Such guidelines or recommendations can be
very influential, and may adversely affect the usage of the Company's
products directly (for example, by recommending a decreased dosage of the
Company's product in conjunction with a concomitant therapy) or indirectly
(for example, by recommending a competitive product over the Company's
product).
COMPETITION
Chiron operates in a highly competitive environment, and the competition is
expected to increase. Competitors include large pharmaceutical, chemical and
blood testing companies, as well as biotechnology companies. Some of these
competitors, particularly large pharmaceutical and blood testing companies, have
greater resources than the Company. Accordingly, even if the Company is
successful in launching a product, it may find that a competitive product
dominates the market for any number of reasons, including the possibility that
the competitor may have launched its product first; the competitor may have
greater marketing capabilities; or the competitive product may have therapeutic
or other advantages. The technologies applied by the Company and its competitors
are rapidly evolving, and new developments frequently result in price
competition and product obsolescence.
CHIRON'S PATENTS MAY NOT PREVENT COMPETITION OR GENERATE REVENUES
Chiron seeks to obtain patents on its inventions. Without the protection of
patents, competitors may be able to use the Company's inventions to manufacture
and market competing products without being required to undertake the lengthy
and expensive development efforts made by Chiron and without having to pay
royalties or otherwise compensate Chiron for the use of the invention.
There can be no assurance that patents and patent applications owned or
licensed to Chiron will provide substantial protection. Important legal
questions remain to be resolved as to the extent and scope of available
patent protection for biotechnology products and processes in the U.S. and
other important markets. It is not known how many of the Company's pending
patent applications will be granted, or the effective coverage of those that
are granted. In the U.S. and other important markets, the issuance of a
patent is neither conclusive as to its validity nor the enforceable scope
of its claims. The Company has engaged in significant litigation to determine
the scope and validity of certain of its patents and expects to continue to
do so in the future.
Even if the Company is successful in obtaining and defending patents, there
can be no assurance that these patents will provide substantial protection. The
length of time necessary to successfully resolve patent litigation may allow
infringers to gain significant market advantage. Third parties may be able to
design around the patents and develop competitive products that do not use the
inventions covered by the patents. Many countries, including certain countries
in Europe, have compulsory licensing laws under which a patent owner may be
compelled to grant licenses to third parties (for example, the third party's
product is needed to meet a threat to public health or safety in that country,
or the patent owner has failed to "work" the invention in that country, or the
third party has patented improvements) and most countries limit the
enforceability of patents against government agencies or government contractors.
In these countries, the patent owner may be limited to monetary relief and may
be unable to enjoin infringement, which could materially diminish the value of
the patent.
AVAILABILITY OF REIMBURSEMENT; GOVERNMENT AND OTHER PRESSURES ON PRICING
In the U.S. and other significant markets, sales of the Company's products
may be affected by the availability of reimbursement from the government or
other third parties, such as insurance companies. It is difficult to predict the
reimbursement status of newly approved, novel biotechnology products, and
current reimbursement policies for existing products may change. In certain
foreign markets, governments have issued regulations relating to the pricing and
profitability of pharmaceutical companies. There have been proposals in the U.S.
(at both the federal and state level) to implement such controls. The growth of
managed care in the U.S. also has placed pressure on the pricing of healthcare
products. These pressures can be expected to continue.
20
<PAGE>
COSTS ASSOCIATED WITH REFOCUSING AND EXPANDING THE BUSINESS
The Company is refocusing its efforts on its core businesses and on
improving operational efficiencies. In addition, management expects to grow
the business in areas in which the Company can be most competitive, either
through in-licensing, collaborations, or acquisitions of products or
companies. In connection with these efforts, the Company may incur
significant charges, costs, and expenses which could impact the Company's
profitability, including impairment losses, restructuring charges, the
write-off of in-process technology, transaction-related expenses, costs
associated with integrating new businesses, and the cost of amortizing
goodwill and other intangibles.
OTHER NEW PRODUCTS AND SOURCES OF REVENUE
Many products in the Company's current pipeline are in relatively early
stages of research or development. The Company's ability to grow earnings in the
near- to medium-term may depend, in part, on its ability to initiate and
maintain other revenue generating relationships with third parties, such as
licenses to certain of the Company's technologies, and on its ability to
identify and successfully acquire rights to later-stage products from third
parties. There can be no assurance that such other sources of revenue will be
established.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS
In 1998, the Company sold certain businesses for cash, including its IN
VITRO diagnostics and ophthalmics businesses, and as a result has significant
cash balances and short-term investments. The Company's financial results
therefore are sensitive to interest rate fluctuations in the U.S. In
addition, the Company sells products in many countries throughout the world,
and its financial results could be significantly affected by fluctuations in
foreign currency exchange rates or by weak economic conditions in foreign
markets.
COLLABORATION PARTNERS
An important part of the Company's business strategy depends upon
collaborations with third parties, including research collaborations and
joint efforts to develop and commercialize new products. As circumstances
change, the Company and its corporate partners may develop conflicting
priorities or other conflicts of interest. The Company may experience
significant delays and incur significant expenses in resolving these
conflicts and may not be able to resolve these matters on acceptable terms.
Even without conflicts of interest, the parties may differ in their views as
to how best to realize the value associated with a current product or a
product in development. In some cases, the corporate partner may have
responsibility for formulating and implementing key strategic or operational
plans. Decisions by corporate partners on key clinical, regulatory, marketing
(including pricing), inventory management, and other issues may prevent
successful commercialization of the product or otherwise impact the Company's
profitability.
STOCK PRICE VOLATILITY
The price of the Company's stock, like that of other biotechnology
companies, is subject to significant volatility. Any number of events, both
internal and external to the Company, may affect the stock price. These include,
without limitation, results of clinical trials conducted by the Company or by
its competitors; announcements by the Company or its competitors regarding
product development efforts, including the status of regulatory approval
applications; the outcome of legal proceedings, including claims filed by the
Company against third parties to enforce its patents and claims filed by third
parties against the Company relating to patents held by the third parties; the
launch of competing products; the resolution of (or failure to resolve) disputes
with collaboration partners; corporate restructuring by the Company; licensing
activities by the Company; and the acquisition or sale by the Company of
products, products in development, or businesses.
In connection with its research and development collaborations, from time
to time the Company invests in equity securities of its corporate partners. The
price of these securities also is subject to significant volatility and may be
affected by, among other things, the types of events that affect the Company's
stock. Changes in the market price of these securities may impact the Company's
profitability.
21
<PAGE>
TAX
The Company is taxable principally in the U.S., Germany, Italy, and The
Netherlands. All of these jurisdictions have in the past and may in the
future make changes to their corporate tax rates and other tax laws, which
could increase the Company's tax provision in the future. The Company has
negotiated a number of rulings regarding income and other taxes that are
subject to periodic review and renewal. If such rulings are not renewed or
are substantially modified, taxes payable in particular jurisdictions could
increase. While the Company believes that all material tax liabilities are
properly reflected in its balance sheet, the Company is presently under audit
in several jurisdictions, and there can be no assurance that Chiron will
prevail in all cases in the event the taxing authorities disagree with its
interpretations of the tax law. In addition, the Company has assumed
liabilities for all income taxes incurred prior to the sales of its former
subsidiaries, Chiron Vision Corporation (subject to certain limitations) and
Chiron Diagnostics Corporation. Future levels of research and development
spending, capital investment, and export sales will impact the Company's
entitlement to related tax credits and benefits which have the effect of
lowering its effective tax rate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. There were no significant changes in the Company's market
risk exposures during the first quarter of 1999. For further discussion of the
Company's market risk exposures, refer to Part II, Item 7A., "Quantitative and
Qualitative Disclosures About Market Risk" in Chiron's Annual Report on Form
10-K for the fiscal year ended January 3, 1999.
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 January 3, 1999. The following
is a description of material developments during the period covered by this
Quarterly Report and should be read in conjunction with the Annual Report.
CONNAUGHT LABORATORIES, LIMITED
Chiron is involved in litigation in Italy, Germany, and The Netherlands
with Connaught Laboratories, Limited ("Connaught") relating to
TriAcelluvax-TM-, the Company's diphtheria/tetanus/acellular pertussis
vaccine.
The Company does not sell TriAcelluvax-TM- in Germany. However, in July
1997, Connaught filed suit against Chiron Behring and Chiron S.p.A. in the
District Court in Dusseldorf, Germany, asserting imminent infringement of
Connaught's European Patent 0 322 115 (the "'115 patent"). The '115 patent,
which contains claims relating to pertussis toxin mutants was upheld in
November 1998 by the EPO Opposition Division. In the German action, Connaught
sought damages and an order enjoining Chiron S.p.A. and Chiron Behring from
the manufacture and sale of TriAcelluvax-TM- in both Germany and Italy. A
trial on this matter took place in August 1998. In April, 1999, the German
court rejected Connaught's request for an order enjoining Chiron S.p.A. from
activities in Italy but entered an injunction against the Chiron defendants
prohibiting future sales in Germany. That injunction becomes effective upon
Connaught's posting of a bond. Connaught's damages claims were denied.
F. HOFFMANN-LAROCHE AG
Chiron is involved in certain litigation in the United States, The
Netherlands, Japan, Germany, and other countries with F. Hoffmann-LaRoche AG
and several of its affiliated companies concerning infringement and/or
validity of certain patents related to HCV technology.
In January 1998, Chiron initiated an action against F. Hoffmann-LaRoche AG
and several of its affiliated companies (collectively, "Roche") in the United
States District Court for the Northern District of California. The Company
asserts
22
<PAGE>
that Roche's manufacture and sale of Amplicor-Registered Trademark- HCV Test
and Amplicor-Registered Trademark- HCV Monitor Test constitutes infringement
of Chiron's U.S. Patent Nos. 5,712,088 (the "'088 patent") and 5,714,596 (the
"'596 patent"). The action seeks damages, injunctive relief, and a
declaratory judgment that Chiron is the sole and exclusive owner of its HCV
technology. Roche filed a counterclaim requesting a declaratory judgment of
non-infringement and invalidity and also alleging infringement of U.S. Patent
No. 5,580,718 (the "'718 patent"), owned by Roche, which allegedly relates to
nucleic acid-based assays for the detection of HCV. Roche's counterclaim of
infringement seeks damages and injunctive relief. Chiron is defending on the
basis of invalidity and non-infringement of the '718 patent and also seeks a
declaration of invalidity of U.S. Patent No. 5,527,669 (the "'669 patent"), a
related patent also owned by Roche. Roche asserts that Chiron is barred from
interfering with Roche's use of polymerase chain reaction ("PCR") to detect
HCV by virtue of Chiron's status as successor-in-interest to Cetus
Corporation, which sold its PCR business to Roche in 1991. A hearing on the
parties' cross-motions for summary judgment on this issue is scheduled for
May 28, 1999.
In January 1997, Chiron, together with Ortho-Clinical Diagnostics, Inc.
filed suit against F. Hoffmann-LaRoche AG ("Roche Germany") in the Regional
Court, 4th Civil Division, Dusseldorf, Germany, for infringement of HCV
immunoassay technology under Chiron's European Patent 0 318 216 (the "'216
patent"). The suit sought an injunction preventing further manufacture or
sale of infringing HCV immunoassay kits by Roche Germany. On April 29, 1999,
the Court issued a decision granting Chiron's application for injunctive
relief. That order becomes effective only upon posting of a bond and is
subject to appeal.
Chiron also filed a suit against Roche in Dusseldorf, Germany, for
infringement of Chiron's European Patent 0 181 150 relating to HIV
probes technology. The suit seeks injunctive relief and damages. That matter
has been set for trial on February 1, 2000.
It is not known when nor on what bases these matters will be concluded.
ORTHO-CLINICAL DIAGNOSTICS, INC.
On February 17, 1998, Chiron filed a lawsuit against Ortho-Clinical
Diagnostics, Inc. ("Ortho") in the United States District Court for the
Northern District of California. The suit sought to compel arbitration of
certain issues relating to the conduct of the parties' joint business.
Chiron's motion to compel arbitration was granted by the Court in December
1998. Ortho appealed that order to the Ninth Circuit Court of Appeals and
then refused Chiron's demand for arbitration in accordance with the order.
Therefore, on March 31, 1999, Chiron filed a second petition in the United
States District Court for the Northern District of California to compel
arbitration. It is not known when nor on what bases these matters will be
concluded.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ -------
<S> <C>
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 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.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
3.04 Bylaws of the Registrant, as amended.
4.01 Indenture, dated as of May 21, 1987, between Cetus Corporation and Bankers Trust
Company, Trustee, incorporated by reference to Exhibit 4.01 of the Registrant's Form
10-Q report for the period ended September 30, 1994.
4.02 First Supplemental Indenture, dated as of December 12, 1991, by and among Registrant,
Cetus Corporation, and Bankers Trust Company, incorporated by reference to Exhibit
4.02 of the Registrant's Form 10-K report for fiscal year 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 Exhibit 4.04 of the
Registrant's Form 10-K report for fiscal year 1998.
10.201 Agreement between the Registrant and Ortho Diagnostic Systems, Inc., a New Jersey
corporation, dated August 17, 1989, and Amendment to Collaboration Agreement between
Ortho Diagnostic Systems, Inc. and Registrant, dated December 22, 1989. (Certain
information has been omitted from the Agreements and filed separately with the
Securities and Exchange Commission (the "Commission") pursuant to a request by
Registrant for confidential treatment pursuant to Rule 24b-2 and a consequent order by
the Commission dated November 30, 1994. The omitted confidential information has been
identified by the following statement: "Confidential Treatment Requested".)
10.202 License and Supply Agreement between Ortho Diagnostic Systems, Inc., a New Jersey
corporation, the Registrant and Abbott Laboratories, an Illinois corporation, dated
August 17, 1989. (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 and a consequent order by
the Commission dated November 30, 1994. The omitted confidential information has been
identified by the following statement: "Confidential Treatment Requested".)
10.206 Agreement between the Registrant and Cephalon, Inc. dated as of January 7, 1994, and
Letter Agreements between the Registrant and Cephalon dated January 13, 1995 and May
23, 1995. (Certain information has been omitted from the Agreements 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".)
27 Financial Data Schedule for Three Months ended March 31, 1999.
27.1 Financial Data Schedule for Three Months ended March 29, 1998 and the Six Months
ended June 28, 1998.
</TABLE>
(b) REPORTS ON FORM 8-K.
None.
24
<PAGE>
CHIRON CORPORATION
March 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHIRON CORPORATION
DATE: MAY 12, 1999 BY: /s/ SEAN P. LANCE
------------------------- ------------------------------------
Sean P. Lance
President and Chief Executive
Officer
DATE: MAY 12, 1999 BY: /s/ JAMES R. SULAT
------------------------- ------------------------------------
James R. Sulat
Chief Financial Officer
25
<PAGE>
EXHIBIT 10.201**
CONFIDENTIAL TREATMENT
AGREEMENT
dated as of the 17th day of August, 1989
between
CHIRON CORPORATION
and
ORTHO DIAGNOSTIC SYSTEMS INC.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
-----
[** This exhibit was filed in connection with Registrant's request for
confidential treatment pursuant to Rule 24b-2 for Exhibit 10.14 to
the Registrant's Form 1O-Q report for the period ended September 30,
1994 and a consequent order by the Commission dated November 30,
1994.]
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
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1.1 Abbott Immunodiagnostic Payments . . . . . . . . . . . . . . . 2
1.2 Abbott Related Expense . . . . . . . . . . . . . . . . . . . 2
1.3 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Annual Margin . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Applicable Market Share . . . . . . . . . . . . . . . . . . . 3
1.6 Average Abbott Payment . . . . . . . . . . . . . . . . . . . . 3
1.7 Average Abbott Related Expense . . . . . . . . . . . . . . . . 3
1.8 Calendar Quarter . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Chiron Expenses . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 Chiron Know-How . . . . . . . . . . . . . . . . . . . . . . . 4
1.11 Chiron Operating Expenses . . . . . . . . . . . . . . . . . . 4
1.12 Chiron Patents . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Combination Product . . . . . . . . . . . . . . . . . . . . . 5
1.14 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 5
1.15 Excluded Expenses . . . . . . . . . . . . . . . . . . . . . . 5
1.16 Field of Use . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.17 Final Profits . . . . . . . . . . . . . . . . . . . . . . . . 5
1.18 Gross Profits . . . . . . . . . . . . . . . . . . . . . . . . 6
1.19 (a) Hepatitis Antigens . . . . . . . . . . . . . . . . . . . 6
(b) Hepatitis Antibodies . . . . . . . . . . . . . . . . . . 6
(c) HCV Antigens . . . . . . . . . . . . . . . . . . . . . . 6
(d) HCV Antibodies . . . . . . . . . . . . . . . . . . . . . 6
(e) Retrovirus Antigens . . . . . . . . . . . . . . . . . . . 6
(f) Retrovirus Antibodies . . . . . . . . . . . . . . . . . . 7
(g) Antigens . . . . . . . . . . . . . . . . . . . . . . . . 7
(h) Antibodies . . . . . . . . . . . . . . . . . . . . . . . 7
1.20 Hepatitis C virus or HCV . . . . . . . . . . . . . . . . . . . 7
1.21 Immunoassay, Immunologically . . . . . . . . . . . . . . . . . 9
1.22 Know-How . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.23 Net Abbott Immunodiagnostic Payments . . . . . . . . . . . . . 9
1.24 Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.25 Operating Profits . . . . . . . . . . . . . . . . . . . . . . 9
1.26 Ortho Expenses . . . . . . . . . . . . . . . . . . . . . . . . 9
1.27 Ortho Know-How . . . . . . . . . . . . . . . . . . . . . . . . 10
1.28 Ortho Operating Expense . . . . . . . . . . . . . . . . . . . 10
1.29 Ortho Patents. . . . . . . . . . . . . . . . . . . . . . . . . 11
1.30 Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.31 Preliminary Expenses . . . . . . . . . . . . . . . . . . . . . 11
1.32 Preliminary Profits . . . . . . . . . . . . . . . . . . . . . 11
1.33 Preliminary Revenues . . . . . . . . . . . . . . . . . . . . . 12
1.34 Presumed Abbott Total Profits . . . . . . . . . . . . . . . . 12
i.
<PAGE>
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<S> <C>
1.35 Presumed Additional Abbott Expense . . . . . . . . . . . . . . 12
1.36 Presumed Additional Abbott Payments . . . . . . . . . . . . . 12
1.37 Presumed Additional Abbott Units . . . . . . . . . . . . . . . 12
1.38 Principal Affiliate . . . . . . . . . . . . . . . . . . . . . 12
1.39 Product . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.40 Raw Material . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.41 Shipped . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.42 Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . 13
1.43 Total Operating Expenses . . . . . . . . . . . . . . . . . . . 13
1.44 Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . 13
1.45 Unforeseen Expenses . . . . . . . . . . . . . . . . . . . . . 13
1.46 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II
MANAGEMENT
2.1 (a) General . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Independence . . . . . . . . . . . . . . . . . . . . . . 15
(c) Activities . . . . . . . . . . . . . . . . . . . . . . . 15
(d) No Fiduciary Duty . . . . . . . . . . . . . . . . . . . . 16
2.2 Supervisory Board . . . . . . . . . . . . . . . . . . . . . . 16
2.3 Meetings of the Supervisory Board . . . . . . . . . . . . . . 17
2.4 Functions and Powers of the Supervisory Board . . . . . . . . 17
2.5 Supervisory Board Actions . . . . . . . . . . . . . . . . . . 22
2.6 Obligations of Parties . . . . . . . . . . . . . . . . . . . . 22
2.7 Limitations of Powers of the Supervisory Board . . . . . . . . 23
2.8 Revised Projections . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III
NEW TECHNOLOGIES
3.1 Notification . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IV
RIGHTS IN PATENTS AND KNOW-HOW
ARTICLE V
LICENSE
5.1 Chiron Know-How and Patents. . . . . . . . . . . . . . . . . . 27
5.2 Ortho Grant to Chiron. . . . . . . . . . . . . . . . . . . . . 28
ii.
<PAGE>
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ARTICLE VI
SUPPLY OF ANTIGENS AND ANTIBODIES
6.1 Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Specifications . . . . . . . . . . . . . . . . . . . . . . . . 29
6.3 Quantity . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4 Delivery Terms . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5 Rejection of Raw Material . . . . . . . . . . . . . . . . . . 31
6.6 GMP Conditions . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
LIMITATIONS ON SUPPLY OF ANTIGENS AND ANTIBODIES
7.1 Supply of Raw Material . . . . . . . . . . . . . . . . . . . . 33
7.2 Chiron Breach of Delivery Obligation . . . . . . . . . . . . . 33
7.3 Escrow of Manufacturing Process . . . . . . . . . . . . . . . 35
ARTICLE VIII
PAYMENTS
8.1 Profit Sharing . . . . . . . . . . . . . . . . . . . . . . . . 37
8.2 * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Abbott Immunodiagnostic Payments . . . . . . . . . . . . . . . 40
8.4 Reallocation of Final Profits . . . . . . . . . . . . . . . . 40
8.5 Form of Payment. . . . . . . . . . . . . . . . . . . . . . . . 41
8.6 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.7 Combination Products . . . . . . . . . . . . . . . . . . . . . 42
8.8 Examination of Books . . . . . . . . . . . . . . . . . . . . . 43
8.9 Interest on Overdue Payments . . . . . . . . . . . . . . . . . 44
ARTICLE IX
PATENT LITIGATION
9.1 Defense of Patent Litigation . . . . . . . . . . . . . . . . . 45
9.2 Patent Claims Against Third Parties . . . . . . . . . . . . . 45
ARTICLE X
WARRANTY, INDEMNIFICATION AND INSURANCE
10.1 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.2 Product Liability and Indemnification . . . . . . . . . . . . 46
10.3 Trade Dress . . . . . . . . . . . . . . . . . . . . . . . . . 49
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
iii.
<PAGE>
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ARTICLE XI
CONFIDENTIALITY
11.1 Confidentiality Provisions . . . . . . . . . . . . . . . . . . 49
11.2 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE XII
TERMINATION, RIGHTS AND OBLIGATIONS UPON TERMINATION
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.2 Termination by Mutual Agreement . . . . . . . . . . . . . . . 51
12.3 Termination by Default . . . . . . . . . . . . . . . . . . . . 51
12.4 Termination by Court Order . . . . . . . . . . . . . . . . . . 52
12.5 Effective Date of Termination . . . . . . . . . . . . . . . . 52
12.6 Rights and Obligations on Term, Termination or Suspension . . 53
12.7 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.8 Effect of Termination on Abbott Agreement . . . . . . . . . . 56
12.9 Cessation of Product Sales and Allocation of Certain Rights . 57
(a) Cessation by Ortho of HCV Product Sales . . . . . . . . . 57
(b) Minimum Sales of Non-HCV Products . . . . . . . . . . . . 57
(c) Definitive Agreement . . . . . . . . . . . . . . . . . . 58
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 58
13.2 Non-competition . . . . . . . . . . . . . . . . . . . . . . . 58
(a) Absence of Existing Competition . . . . . . . . . . . . . 58
(b) Future Business . . . . . . . . . . . . . . . . . . . . . 59
(c) Confidentiality . . . . . . . . . . . . . . . . . . . . . 60
13.3 Use of Parties Name . . . . . . . . . . . . . . . . . . . . . 60
13.4 Assignability . . . . . . . . . . . . . . . . . . . . . . . . 61
13.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 62
13.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 62
13.7 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . 62
13.8 Notice and Reports . . . . . . . . . . . . . . . . . . . . . . 63
13.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.10 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.11 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.12 Relationship of the Parties . . . . . . . . . . . . . . . . . 64
13.13 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . 65
(a) Disputes . . . . . . . . . . . . . . . . . . . . . . . . 65
(b) Alternative Dispute Resolution . . . . . . . . . . . . . 65
(c) Costs and Fees . . . . . . . . . . . . . . . . . . . . . 68
iv.
<PAGE>
<CAPTION>
PAGE
----
<S> <C>
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . 68
(e) Award . . . . . . . . . . . . . . . . . . . . . . . . . . 68
13.14 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . 68
13.15 Representations . . . . . . . . . . . . . . . . . . . . . . . 69
13.16 Execution of Agreement and Guarantee by Johnson and
Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
13.17 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
13.18 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 69
13.19 Import and Export Controls . . . . . . . . . . . . . . . . . . 70
13.20 European Economic Community . . . . . . . . . . . . . . . . . 70
13.21 General Warranty . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
v.
<PAGE>
EXHIBITS
EXHIBIT A Accounting Methodology (Section 8.8)
EXHIBIT B Existing Chiron Agreements (Sections 5.1 and 6.1)
EXHIBIT C Criteria for Contractual Agreements (Section 6.6)
EXHIBIT D Principal Ortho Affiliates (Section 1.38)
EXHIBIT E Certain Ortho Affiliates, Principal Countries and Directors of
Ortho (Section 13.2)
EXHIBIT F Excluded Raw Material (Sections 1.19(a) and (e); 6.1)
EXHIBIT G Use of Parties' Names (Section 13.3)
EXHIBIT H Certain Abbott Agreements (Section 8.3)
vi.
<PAGE>
AGREEMENT
This Agreement ("Agreement"), dated as of the 17th day of August,
1989, is made and entered into by and between CHIRON CORPORATION ("Chiron"), a
Delaware corporation, with offices at 4560 Horton Street Emeryville, California
94608 and ORTHO DIAGNOSTIC SYSTEMS INC. ("Ortho"), a New Jersey corporation,
with offices at Route 202, Raritan, New Jersey 08869.
RECITALS
A. Chiron and Ortho have entered into a License, Research and Supply
Agreement dated as of October 3, 1986 ("License Agreement") to collaboratively
develop certain diagnostic products related to hepatitis viruses and human
immunodeficiency virus using recombinant DNA and antibody technologies.
B. Chiron and Ortho also have entered into a Distribution and
Sales Agreement ("Distribution Agreement") dated as of August 31, 1987
related to the distribution of a human immunodeficiency virus confirmatory
test developed by Chiron.
C. Ortho and Chiron wish Ortho to sublicense certain of its
rights under the License Agreement to Abbott Laboratories, an Illinois
corporation ("Abbott") and intend to enter into a License and Supply
Agreement of even date herewith among Chiron, Ortho and Abbott (the "Abbott
Immunodiagnostics Agreement").
D. Chiron and Ortho wish to restructure and expand the scope of the
License Agreement and the Distribution Agreement.
1.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree, effective as of the
Effective Date, as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement the following definitions shall
apply.
1.1 ABBOTT IMMUNODIAGNOSTIC PAYMENTS shall mean all amounts paid
to Ortho or Chiron, as the case may be, by Abbott pursuant to the Abbott
Immunodiagostics Agreement. Such term shall include all actual Abbott
Immunodiagnostic Payments paid to Chiron and Ortho in respect of a given year
whether or not received during such year.
1.2 ABBOTT RELATED EXPENSE shall mean that portion of Ortho Expense,
if any, and of Chiron Expense, fairly allocable to the performance of their
respective obligations under the Abbott Immunodiagnostics Agreement.
1.3 AFFILIATE shall mean any company or entity controlled by,
controlling, or under common control with either party hereto and shall
include without limitation any company fifty percent (50%) or more of whose
voting stock or participating profit interest is owned or controlled,
directly or indirectly, by either party, and any company which owns or
controls, directly or indirectly, fifty percent (50%) or more of the voting
stock of either party.
1.4 ANNUAL MARGIN shall mean * with respect to calendar year
1993, * with respect to calendar year 1994 and * with respect to each
calendar year thereafter.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
2.
<PAGE>
1.5 APPLICABLE MARKET SHARE shall mean (i) if the number of Units
of Products containing HCV Antigens or Antibodies ("HCV Products") Shipped by
* and * is equal to or greater than the * of the number of HCV Products
Shipped * (other than * ), then the * obtained by * the * of the
number of Units of HCV Products Shipped * by the total number of Units of
HCV Products Shipped * (including * ), and (ii) in all other cases, the
* obtained by * the number of Units of HCV Products Shipped * by the *
of the number of Units of HCV Products Shipped by * (other than *
1.6 AVERAGE ABBOTT PAYMENT shall mean the quotient obtained by
dividing Abbott Immunodiagnostic Payments for a given period by the aggregate
number of Units of Product Shipped by Abbott in such period.
1.7 AVERAGE ABBOTT RELATED EXPENSE shall mean the quotient
obtained by dividing Abbott Related Expense for a given period by the
aggregate number of Units of Product Shipped by Abbott in such period.
1.8 CALENDAR QUARTER shall mean a three (3) month period beginning
on each January 1, April 1, July 1 and October 1.
1.9 CHIRON EXPENSES shall mean, subject to the limitations in
Article II, the fully burdened and fairly allocable costs to Chiron and its
Affiliates, on a consolidated basis, of performing its obligations under this
Agreement and the Abbott Immunodiagnostics Agreement, including depreciation
or amortization of capital
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
3.
<PAGE>
expenditures related thereto, but excluding (i) Excluded Expenses and (ii)
general and administration expenses (which shall include without limitation the
expense of all accounting, finance and management information functions). Such
expenses shall be determined by Chiron in accordance with Exhibit A on a
consistent basis and shall consist of Raw Material manufacturing costs, research
and development costs, regulatory affairs, royalties, and other fully burdened,
fairly allocable costs in direct support of other functions which may be
allocated to Chiron in accordance with Article II and all outside legal costs
related thereto (including, without limitation, defense and other costs incurred
as provided for in Article IV, IX or X below).
1.10 CHIRON KNOW-HOW shall mean all inventions, discoveries, trade
secrets, information, experience, data, formulas, procedures and results, and
improvements thereon, developed, owned, licensed (with a right to sublicense to
Ortho) or controlled by Chiron (including Chiron's Affiliates) which relate to
or are used directly in connection with the development, manufacture, or use of
Antigens, Antibodies or Products.
1.11 CHIRON OPERATING EXPENSES shall mean any Chiron Expense
incurred in connection with research and development of Antigens and
Antibodies, and any such expenses with respect to marketing or sales
activities, if any, assigned to Chiron by the Supervisory Board, and the
depreciable or amortizable portion of those capital expenditures related
thereto.
1.12 CHIRON PATENTS shall mean all patent applications, owned,
licensed (with a right to sublicense to Ortho) or controlled by Chiron or any
Chiron Affiliate relating to the Chiron Know-How which are based on
inventions made prior to or during the term of this Agreement in the United
States or any foreign jurisdiction,
4.
<PAGE>
including any addition, continuation, continuation-in-part, or division thereof
or any substitute application therefor; any patent issued with respect to such
patent application or any other patent owned, licensed (with a right to
sublicense to Ortho) or controlled by Chiron which relates to or is used
directly or indirectly in connection with the development, manufacture, or use
of Antigens, Antibodies or Products; any reissue or extension of any such
patents, and any confirmation patent or registration patent or patent of
addition based on any such patents.
1.13 COMBINATION PRODUCT shall mean a product which, in addition to
utilizing or containing Antigens or Antibodies, contains another component as an
Immunologically active ingredient.
1.14 EFFECTIVE DATE shall mean November 1, 1989.
1.15 EXCLUDED EXPENSES means any and all costs and expenses
incurred in defending, settling or otherwise discharging any liability to a
third party (including employees) based upon acts or omissions that are
tortious, in breach of contract, in violation of applicable law or in
violation of obligations under this Agreement, except (a) as otherwise
expressly provided in this Agreement, including Article IX (Patent Litigation)
and Article X (Indemnity) or (b) to the extent that a contractual obligation
or the specific act or omission is expressly approved by the Supervisory
Board.
1.16 FIELD OF USE shall mean the use of any Immunoassay for the
direct or indirect detection of hepatitis viruses or retroviruses in humans
or human samples.
1.17 FINAL PROFITS shall mean Total Revenues minus Total Expenses. All
Abbott Immunodiagnostics Payments received by Chiron or Ortho in respect of any
year shall be included in the calculation of Final Profits for such year,
notwithstanding that such payments are received by Chiron or Ortho after the
close of such year.
5.
<PAGE>
1.18 GROSS PROFITS shall mean Net Sales minus the sum of (a) all
Chiron Expenses included in cost of goods sold by Ortho and (b) all Ortho
Expenses included in cost of goods sold by Ortho, determined pursuant to the
accounting methodology set forth on Exhibit A.
1.19 (a) HEPATITIS ANTIGENS shall mean any peptide, polypeptide or
ligand and all proteins which react Immunologically with antibodies which are
Immunologically reactive with Hepatitis B virus, Delta antigen, Hepatitis A
virus, Hepatitis C viruses, or any other virus that is at any time classified as
a hepatitis virus by the International Committee on the Taxonomy of Viruses (or
by any body that replaces that committee).
(b) HEPATITIS ANTIBODIES shall mean any and all antibodies or
fragments thereof or other anti-ligands Immunologically reactive with any of the
viruses referenced in Paragraph (a) above except those listed in Exhibit F.
(c) HCV ANTIGENS shall mean any peptide, polypeptide or ligand
and all proteins which react Immunologically with antibodies which are
Immunologically reactive with HCV.
(d) HCV ANTIBODIES shall mean any and all antibodies or
fragments thereof or other anti-ligands Immunologically reactive with HCV
Antigens.
(e) RETROVIRUS ANTIGENS shall mean any peptide, polypeptide or
ligand which reacts Immunologically with antibodies which are Immunologically
reactive with any human retrovirus, including any human immunodeficiency virus,
except those listed in Exhibit F.
6.
<PAGE>
(f) RETROVIRUS ANTIBODIES shall mean any and all antibodies or
fragments thereof or other anti-ligands Immunologically reactive with Retrovirus
Antigens.
(g) ANTIGENS shall mean Hepatitis Antigens and Retrovirus
Antigens.
(h) ANTIBODIES shall mean Hepatitis Antibodies and Retrovirus
Antibodies.
1.20 HEPATITIS C VIRUS or HCV may be used interchangeably throughout
this Agreement and shall mean any viral isolate, other than isolates within the
viral classes Hepatitis A, Hepatitis B (including Hepatitis B-2) and Hepatitis
delta, including any subtypes of such classes, that:
(a) is included in the viral class established by the
International Committee on the Taxonomy of Viruses, or any body that replaces
the Committee, and termed Hepatitis C (or other name selected by the
Committee), including any subtype of such class, wherein the class includes
an isolate having genomic sequences, cDNA transcripts of which are disclosed
in an "Existing Chiron HCV Patent Application," which means:
(i) United States patent application serial no. 122,714
filed 18 November 1987 (hereinafter "USSN 122,714"); or
(ii) a United States patent application filed on or before
the effective date of this Agreement that claims the benefit of the filing date
of USSN 122,714 under Title 35, section 120, of the United States Code; or
7.
<PAGE>
(iii) a non-United States patent application that claims
priority under the Paris Convention from a United States patent application
identified in (i) or (ii) above; or
(b) (i) is at least * homologous at the amino acid level
to an isolate having genomic sequences that are disclosed in an Existing
Chiron HCV Patent Application determined by a comparison of the corresponding
protein sequences encoded by the entire available genomes of the isolates
with the software available on the Dayhoff protein data base, or if the
Dayhoff data base is not available, any scientifically recognized protein
sequence data base in the public domain; and
(ii) has a genome that contains a least *
non-overlapping sequences of * nucleotides wherein each such
non-overlapping sequence either hybridizes to, or is at least * identical
to, a corresponding sequence of twenty (20) nucleotides or its complement,
disclosed in an Existing Chiron HCV Patent Application; and,
(iii) has a genome of the same nucleic acid type (I.E.,
RNA or DNA) as an isolate having genomic sequences, cDNA transcripts of
which are disclosed in an Existing Chiron HCV Patent Application; and
(iv) has an organization of coding domains in its genome
similar to an isolate having genomic sequences, cDNA transcripts of which are
disclosed in an Existing Chiron HCV Patent Application; or
(c) any defective form of an isolate defined by (a) or (b),
wherein "defective" means a deletion of a portion of the genome including
deletions leading to replication defects.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
8.
<PAGE>
This definition is independent of the definition of HCV in any Chiron
patent application.
1.21 IMMUNOASSAY, IMMUNOLOGICALLY and the like refer to both antigen/
immunoglobulin binding and other ligand/anti-ligand binding phenomena, excluding
nucleic acid hybridization.
1.22 KNOW-HOW shall mean all inventions, discoveries, trade secrets,
information, experience, data, formulas, procedures and results, and
improvements thereon, which relate to or are used directly in connection with
the development, manufacture, or use of Antigens, Antibodies or Products.
1.23 NET ABBOTT IMMUNODIAGNOSTIC PAYMENTS shall mean the excess, if
any, of Abbott Immunodiagnostic Payments over Abbott Related Expenses.
1.24 NET SALES shall mean, with respect to each Product, (i) the total
of all charges invoiced to unaffiliated third party customers by Ortho or its
Principal Affiliates for sale, directly or indirectly, of Products, less sales
and excise taxes, import duties and other governmental charges imposed directly
upon and actually paid by Ortho or such Affiliates, customary discounts allowed
and taken, corporate rebates and credits or refunds for goods returned, plus
(ii) the total of all intercompany transfer prices to Affiliates of Ortho which
are not Principal Affiliates, less sales and excise taxes, import duties and
other governmental charges imposed directly upon and actually paid by Ortho.
1.25 OPERATING PROFITS shall mean Final Profits minus Abbott
Immunodiagnostics Payments.
1.26 ORTHO EXPENSES shall mean, subject to the limitations in Article
II the fully burdened and fairly allocable costs to Ortho and its Principal
Affiliates, on a
9.
<PAGE>
consolidated basis, of performing Ortho's obligations under this Agreement
and the Abbott Immunodiagnostics Agreement, including depreciation or
amortization of capital expenditures related thereto, but excluding (i)
Excluded Expenses and (ii) general and administration expenses (which shall
include without limitation the expense of all accounting, finance and
management information functions). Such expenses shall be determined by Ortho
in accordance with Exhibit A on a consistent basis and shall consist of
Product development, Product manufacturing, instrument services, marketing,
sales, distribution, instrument and software research and development,
technical service, regulatory affairs, clinical services and royalties and
other fully burdened, fairly allocable costs in direct support of other
functions which may be allocated to Ortho in accordance with Article II and
all outside legal costs related thereto (including, without limitation,
defense and other costs incurred as provided in Article IV, IX or X below).
1.27 ORTHO KNOW-HOW shall mean all inventions, discoveries, trade
secrets, information, experience, data, formulas, procedures and results, and
improvements thereon, developed, owned, licensed (with a right to sublicense
to Chiron) or controlled by Ortho or Ortho's Principal Affiliates which
relate to or are used directly in connection with the development,
manufacture, or use of Antigens, Antibodies or Products.
1.28 ORTHO OPERATING EXPENSE shall mean any Ortho Expense incurred
in connection with research and development, marketing and sales and the
depreciable or amortizable portion of those capital expenditures relating
thereto, except that end user instrument amortization expense shall be
treated as a manufacturing cost rather than an Ortho Operating Expense.
10.
<PAGE>
1.29 ORTHO PATENTS shall mean all patent applications owned,
licensed (with a right to sublicense to Chiron) or controlled by Ortho or
Ortho's Principal Affiliates relating to the Ortho Know-How which are based
on inventions made prior to or during the term of this Agreement in the
United States or any foreign jurisdiction, including any addition,
continuation, continuation-in-part, or division thereof or any substitute
application therefor; any patent issued with respect to such patent
application or any other patent owned, licensed (with a right to sublicense
to Chiron) or controlled by Ortho which relates to or is used directly or
indirectly in connection with the development, manufacture, or use of
Antigens, Antibodies or Products; any reissue or extension of any such
patents, and any confirmation patent or registration patent or patent of
addition based on any such patents.
1.30 PATENTS shall mean all patent applications which are based on
inventions made prior to or during the term of this Agreement in the United
States or any foreign jurisdiction, which relate to or are used directly or
indirectly in connection with the development, manufacture or use of
Antigens, Antibodies or Products, including any addition, continuation,
continuation-in-part, or division thereof or any substitute application
therefor; any patent issued with respect to such patent application; any
reissue or extension of any such patent, and any confirmation patent or
registration patent or patent of addition based on any such patent.
1.31 PRELIMINARY EXPENSES shall mean Chiron Expenses plus Ortho
Expenses less Ortho Expenses of Ortho's Principal Affiliates.
1.32 PRELIMINARY PROFITS shall mean Preliminary Revenues minus
Preliminary Expenses. All Abbott Immunodiagnostic Payments received by Chiron or
Ortho in respect of a Calendar Quarter shall be included in the calculation of
Preliminary Profits
11.
<PAGE>
for such quarter, notwithstanding that such payments are received by Chiron or
Ortho after the close of such quarter.
1.33 PRELIMINARY REVENUES shall mean Abbott Immunodiagnostic Payments
plus Net Sales less Net Sales by Ortho's Principal Affiliates plus the total of
all intercompany transfer prices by Ortho to its Principal Affiliates for
Products.
1.34 PRESUMED ABBOTT TOTAL PROFITS shall mean (i) Abbott
Immunodiagnostic Payments less Abbott Related Expenses plus (ii) Presumed
Additional Abbott Payments less Presumed Additional Abbott Expenses.
1.35 PRESUMED ADDITIONAL ABBOTT EXPENSE shall mean the dollar
amount obtained by multiplying (i) Presumed Additional Abbott Units, times
(ii) Average Abbott Related Expense.
1.36 PRESUMED ADDITIONAL ABBOTT PAYMENTS shall mean a dollar amount
calculated by multiplying (i) Presumed Additional Abbott Units, times (ii) the
Average Abbott Payment.
1.37 PRESUMED ADDITIONAL ABBOTT UNITS shall mean the number of Units
obtained by multiplying (i) the number of Units of Product containing or
utilizing HCV Antigens or Antibodies Shipped by Ortho and its Affiliates,
subject to Section 8.4(c) below, times (ii) the Applicable Market Share.
1.38 PRINCIPAL AFFILIATE shall mean, with respect to Ortho, an
Affiliate of Ortho listed on Exhibit D hereto that has accepted a sublicense
from Ortho hereunder and has agreed to be bound by the terms hereof as
applicable to Ortho as long as they are applicable to Ortho and successors in
interest of such Principal Affiliates. Exhibit D may be amended by Ortho from
time to time to add additional Affiliates by written notice to Chiron.
12.
<PAGE>
1.39 PRODUCT shall mean any and all Immunoassays, Immunoassay kits or
Immunoassay test configurations (excluding the instrument portion thereof), the
manufacture, sale or use of which utilize or contain Antigens or Antibodies.
1.40 RAW MATERIAL shall mean a composition of matter which contains
one (1) distinct type of Antigen or Antibody.
1.41 SHIPPED shall have the meaning assigned to that term in the
Abbott Immunodiagnostics Agreement.
1.42 TOTAL EXPENSES shall mean Chiron Expenses plus Ortho Expenses.
1.43 TOTAL 0PERATING EXPENSES shall mean Chiron Operating Expense plus
Ortho Operating Expense.
1.44 TOTAL REVENUES shall mean Net Sales plus Abbott Immunodiagnostic
Payments.
1.45 UNFORESEEN EXPENSES shall mean any reasonable Chiron Expenses
or Ortho Expenses which are not contemplated by an Approved Budget, which
could not reasonably have been foreseen at the time revised projections for
the calendar year in question are first submitted to the Supervisory Board
pursuant to Section 2.8 below, and which are incurred in connection with
defending, settling or otherwise discharging any liability to a third party
(including expenses contemplated under Article IX (Patent Litigation) and
Article X (Indemnity)) or are incurred as a result of loss or damage beyond
the control of either party, including, without limitation, fire, earthquake,
other natural disasters, acts of God, acts of public enemy, riot, vandalism,
insurrection, governmental regulation of the sale of Products or the
transportation thereof, strikes or other labor disturbances, boycotts, and
shortages of material or labor; provided, that no expense shall be treated as
an Unforeseen Expense for purposes of Section 2.8 except to
13.
<PAGE>
the extent the party that incurs such expense uses reasonable efforts to
mitigate the unforseen event that lead to such expense and such expense is
reasonable in the light of all the surrounding circumstances.
1.46 UNITS shall have the meaning assigned to that term in the Abbott
Immunodiagnostics Agreement.
ARTICLE II
MANAGEMENT
2.1 (a) GENERAL. The parties are entering this Agreement with the
following express intentions which, subject to all other terms of this
Agreement, shall establish the framework for the decisions of the Supervisory
Board, any neutral acting under Section 2.4 and the parties (other than Ortho
when acting under Subsection 2.4(b)(iii) in any year in which Net Abbott
Immunodiagnostic Payments exceed * and Presumed Abbott Total Profits exceed
* , and in any year in which Ortho can demonstrate with creditable
evidence that the foregoing can be reasonably expected to exceed such
amounts). These intentions shall serve as a general guide for the exercise of
business judgment by the parties, but are not intended to and do not create
any obligation or impose any liability upon either party with respect to the
good faith exercise of such judgment.
(i) The parties intend that their activities under this
Agreement generally shall be directed toward optimizing the profit of each of
them under this Agreement while at the same time developing a strong, efficient,
effective and growing presence in the markets for Products worldwide.
(ii) The parties intend that their activities optimize the
commercial potential of all of their respective Patents and Know How under this
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
14.
<PAGE>
Agreement and that the presence in the market of Products not be limited to HCV
bloodscreening Products.
(iii) The parties intend periodically to evaluate
critically the commercial success of their activities under this Agreement and
to initiate such corrective action as may be necessary in order to optimize
Final Profits.
(b) INDEPENDENCE. Subject to the terms of this Agreement, the
activities and resources of each party under this Agreement shall be managed by
Chiron and Ortho, each acting independently and in its own capacity, with
supervision of the Supervisory Board being exercised to the degree set forth
below. Except as expressly set forth herein, properties used or acquired in
connection with the activities contemplated by this Agreement (including,
without limitation, tangible and intangible personal property) shall be owned by
one or the other of the parties, and not jointly. Each party shall account to
the other party for all income and expense associated with the conduct of its
activities under this Agreement and shall advise the Supervisory Board of the
same, all as provided herein.
(c) ACTIVITIES. Subject to any alternative assignment made in
accordance with Section 2.4 below, Chiron will be primarily responsible for
research and for manufacturing Raw Materials, and Ortho will be primarily
responsible for Product development, instruments and software, regulatory
affairs, Product manufacturing, marketing, distribution and sales. Except as (i)
expressly provided to the contrary in this Agreement, or (ii) when acting
pursuant to a Plan and Budget approved by the Supervisory Board, any neutral or
Ortho to the extent provided in Section 2.4, each party shall perform such
functions (or cause them to be performed by others) in such manner as it
believes in good faith to be consistent with the intention of the parties in
15.
<PAGE>
entering into this Agreement and neither party shall intentionally act under
this Agreement in such a way as to compromise the objectives of the parties as
set forth in this Section 2.1.
(d) NO FIDUCIARY DUTY. The provisions, contained in this Section
2.1 and this Agreement are not intended to create and shall not create any
fiduciary duty on either party and shall not require either party to expend
funds or efforts or commit resources in excess of that approved by the
Supervisory Board or as otherwise expressly provided for in Article II. Neither
party shall be awarded damages for any breach by the other party of its
obligations under Section 2.1 of this Agreement except for compensatory damages
actually incurred and proven (any exemplary or punitive damages being hereby
waived) up to a maximum of * per year.
2.2 SUPERVISORY BOARD. Chiron and Ortho shall create, within sixty
days after the date of this Agreement, a six member supervisory board (the
"Supervisory Board"). Three members of the Supervisory Board shall be selected
by Chiron and three members of the Supervisory Board shall be selected by Ortho.
Members of the Supervisory Board shall be composed of senior officers and/or
directors of each party and shall include at least the chief executive officers
(or, in the absence of an officer with such title, the president) of Chiron and
Ortho. Members of the Supervisory Board shall serve in such capacities, on such
terms and conditions, and for such duration as shall be determined by the party
selecting such person for membership on the Supervisory Board. Any member of the
Supervisory Board may be removed at any time, with or without cause or notice,
by the party who has selected such person for membership on the Supervisory
Board. An alternate member designated by a party may serve temporarily in the
absence of a permanent member designated by such party.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
16.
<PAGE>
2.3 MEETINGS OF THE SUPERVISORY BOARD. The Supervisory Board:
(i) shall hold meetings at such times as shall be
determined by a majority of the entire membership of the Board but in no event
shall such meetings be held less frequently than once every three months; notice
of any such meeting shall be provided to each member of the Board no later than
thirty days prior to the scheduled date of such meeting (unless such notice is
waived in writing by any such member), which notice shall contain the date, time
and place of such meeting and describe the proposed agenda of items to be
discussed at such meeting, responsibility for arranging meetings will alternate
between the parties on a quarterly basis;
(ii) may conduct meetings in person or by conference
telephone, provided that any decision made during a telephone conference meeting
is evidenced in a conformed writing signed by one of the members of such Board
selected by each of the parties;
(iii) shall keep minutes reflecting actions taken at
meetings; and
(iv) may act without a meeting if prior to such action a
written consent thereto is signed by all members of the Board.
2.4 FUNCTIONS AND POWERS OF THE SUPERVISORY BOARD.
(a) The activities of the parties under this Agreement shall be
supervised by the Supervisory Board only to the extent set forth herein. The
Supervisory Board shall perform the following functions:
(i) consider and approve, annually before the end of each
calendar year, the strategic plan (the "Plan") for the activities of the parties
under this Agreement for the next succeeding year and approve a budget
(excluding the Abbott
17.
<PAGE>
Immunodiagnostic Payments) (the "Budget") for the next succeeding calendar year
consistent with such Plan. Any Budget so approved by the Supervisory Board is
hereinafter referred to as an "Approved Budget." The Plan shall include at least
the following: Products to be marketed, the schedule for Product introductions,
the research and development projects to be undertaken by each party and other
similar matters of strategic importance. The Plan shall not include, among other
things, approval of numbers of employees, approval of the distribution of
expenses within each of the categories listed in (B) below, and other similar
matters of tactical (as opposed to strategic) importance. The Budget shall (A)
subject to Section 2.8(b) below, include the maximum amounts which each party
may have included as part of Chiron Operating Expense or Ortho Operating
Expense, respectively, for such year; and (B) specify at least the following
budget categories: cost of goods sold, research, development, marketing, sales
and distribution; and (C) identify the capital expenditures of each party
relevant to this Agreement; and (D) will include a budgeted Gross Profit and
budgeted Operating Profit;
(ii) approve, annually before the end of each calendar
year, any alternative assignment of responsibilities to the parties for the
performance of specific functions contemplated by the Plan;
(iii) monitor progress of the activities contemplated
hereby and performance of the parties against the Plan and Budget, and agree to
amendments to the Plan and Budget from time to time as deemed appropriate;
(iv) oversee the obligations of Chiron and Ortho under
this Agreement and propose changes or modifications as necessary;
18.
<PAGE>
(v) review progress reports provided by either party,
pursuant to the terms of this Agreement, or as otherwise necessary to monitor
the activities of the parties under the Plan and the Budget;
(vi) review and analyze research, development and marketing
literature and other available information relating to Antigens and Antibodies
and/or Products;
(vii) suggest new avenues or areas of research and
development for Antigens and Antibodies and/or Products, including possible
acquisition of third party technology, as they are identified;
(viii) encourage and facilitate ongoing cooperation between
the parties hereto in order to optimize the commercialization of the Products
and the profitability of the activities contemplated hereby to the parties,
including consideration of and recommendations to the parties regarding the
possible licensing to others of any Chiron or Ortho Patents or Chiron or Ortho
Know-How that are not otherwise being exploited under this Agreement;
(ix) approve any agreements with third parties to be made
by the parties jointly regarding the subject matter of this Agreement; and
(x) perform such other functions as appropriate to further
the purposes of this Agreement as determined by the parties.
(b) Subject to paragraph (c) below, if by the end of any
calendar year (a "Prior Year"), the Supervisory Board fails to agree on a Plan
and a Budget for the next succeeding calendar year (the "New Year"), Ortho,
subject to the over-all limitation on amounts which may be charged as Chiron
Operating Expenses and Ortho Operating Expenses as set forth below, and to
Chiron's right to charge sums expended
19.
<PAGE>
on research and development as set forth in subsection (ii) below, shall in its
sole discretion determine the Plan and Budget for the New Year, the allocation
of Operating Expenses to specific Budget categories, and any alternative
assignment of responsibilities to the parties for the performance of specific
functions contemplated by the Plan; provided, that Chiron shall in any event be
responsible for research and for manufacturing Antigens and Antibodies. In any
such year, the Budget for Operating Expenses determined by Ortho for the New
Year shall not exceed the following:
(i) Total Operating Expenses for the New Year shall not
exceed an amount (the "Expense Budget") equal to * of Net Sales for the Prior
Year. In the event that the Supervisory Board does not approve a Budget for
calendar year 1990, for purposes of this subsection (i) Net Sales for the Prior
Year shall be deemed to be *
(ii) Chiron Operating Expenses for research and development
for the New Year shall not exceed * of the Expense Budget and, notwithstanding
any lesser amount budgeted by Ortho, (A) subject to paragraph (c) below, in
calendar years 1990, 1991, and 1992, and in any year in which Net Abbott
Immunodiagnostic Payments are less than * or Presumed Abbott Total Profits are
less than * , or Chiron can demonstrate with creditable evidence that the
foregoing cannot reasonably be expected to exceed such amounts, Chiron, in its
sole discretion, may charge as Chiron Operating Expense for research and
development up to an amount equal to * of the Expense Budget, and (B) in any
other year, in it sole discretion, Chiron may charge as Chiron Operating Expense
for research and development up to an amount equal to * of Abbott
Immunodiagnostic Payments for the Prior Year. Subject to the foregoing,
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
20.
<PAGE>
Chiron shall in good faith endeavor to spend the amount budgeted by Ortho (plus
or minus * of such amount) for Chiron Operating Expenses for research and
development.
(iii) Ortho Operating Expenses for the New Year shall not
exceed * of the Expense Budget.
(c) If, by the end of November in any year of operating under
a prescribed Budget of the type set forth in paragraph (b) above, the
Supervisory Board again fails to agree on a Plan and a Budget for the next
succeeding calendar year, and either (i) the next succeeding year is calendar
year 1991 or 1992, or (ii) the next succeeding year is calendar year 1993 or
later, and Net Abbott Immunodiagnostic Payments did not exceed * or
Presumed Abbott Total Profits did not exceed * in the immediately preceding
four calendar quarters, then the Plan and Budget for such succeeding calendar
year shall be determined by a neutral third party as set forth in paragraph
(d) below.
(d) In order to effectuate the purposes of paragraph (c)
above, in any year in which the parties are operating under a prescribed
budget in accordance with paragraph (b) above, the parties shall, no later
than June 30 of that year, identify and retain an independent third party to
serve as the neutral, if required, for establishing the Budget for the
following year. If the parties have been unable to agree upon and retain
such a neutral by June 30, the neutral shall be selected by Arthur Andersen &
Co., unless either party or Johnson & Johnson employs or has employed such
accounting firm on a regular basis, in which case Arthur Andersen & Co. shall
designate an independent certified public accounting firm to select the
neutral.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
21.
<PAGE>
(e) If, in accordance with paragraph (c) above, the Plan and
Budget for a calendar year is to be determined by a neutral, the neutral shall
establish such Plan and Budget no later than January 15 of that year; provided,
that if for any reason the Plan and Budget has not been established by such
date, the parties shall operate for one additional Calendar Quarter under a Plan
and Budget determined in the manner set forth in paragraph (b) above. The
neutral shall establish the Plan and Budget by reference to the objectives of
the parties hereunder as set forth in Section 2.1 above and by reference to the
proposals, if any, submitted by each of the parties.
(f) Nothing in this Agreement shall prevent either party from
incurring any expenses in connection with the transactions contemplated hereby;
provided, that neither party may charge any such expenses as Chiron Expenses or
Ortho Expenses in accordance with Section 8.1 of this Agreement unless (i) with
respect to Chiron Operating Expenses and Ortho Operating Expenses, the same
shall have been approved by the Supervisory Board through an effective Budget
and Plan or as otherwise provided in Section 2.4(b) and (c) above, and (ii) with
respect to all other Chiron Expenses and Ortho Expenses, the same shall be
reasonable in relation to the volume of Product sold and in the light of the
purposes of this Agreement.
2.5 SUPERVISORY BOARD ACTIONS. Actions to be taken by the
Supervisory Board pursuant to the terms of this Agreement shall be taken only
following the affirmative vote of a majority of the entire Supervisory Board.
2.6 OBLIGATIONS OF PARTIES.
(a) Chiron and Ortho shall provide the Supervisory Board with
reasonable access during regular business hours to all records and documents
which it may reasonably require in order to perform its obligations hereunder;
provided that if
22.
<PAGE>
such records and documents are under a bona fide obligation of confidentiality
to a third party other than an Affiliate, then Chiron or Ortho, as the case may
be, may withhold access thereto to the extent necessary to satisfy such
obligation.
(b) Each party will make reasonable reports to the other party
and to the Supervisory Board with respect to its functions and tasks provided
for in this Agreement or otherwise assigned to it in accordance with Section 2.4
above.
(c) As to any Approved Budget, the parties shall in good faith
endeavor to spend up to the limits provided therein. As to any Budget other
than an Approved Budget, and subject to Section 2.4(b)(ii) above, Chiron shall
in good faith endeavor to spend the amount budgeted (plus or minus * , for
Chiron Operating Expenses for research and development. The parties recognize
however, that business conditions may necessitate the expenditure of lesser
amounts. The parties shall notify each other of any anticipated material under
expenditures.
2.7 LIMITATIONS OF POWERS OF THE SUPERVISORY BOARD. The Supervisory
Board shall only have such powers as are delegated to it hereunder.
2.8 REVISED PROJECTIONS.
(a) The parties acknowledge that from time to time it may be
desirable to vary an Approved Budget in view of a projected Gross Profit for the
year which will result in increasing the Final Profit contemplated in the
Approved Budget. In order to effect the purpose of this Section 2.8, each party
shall notify the Supervisory Board and the other party promptly of any changes
in projected Gross Profit. Such notice shall reflect the good faith projections
of such party and shall specify in reasonable detail the basis for the revised
projections, including (i) the effect on
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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projected Gross Profit of actual Net Sales to date and (ii) the actual Gross
Profit achieved in the preceding calendar quarter annualized.
(b) If in any calendar year projected Gross Profit exceeds the
budgeted Gross Profit, each party, acting in good faith, may increase the
maximum amount of Chiron Operating Expenses and Ortho Operating Expenses, as the
case may be, in excess of those provided in the Approved Budget in an amount
equal to the GREATER of:
(i) the amount, if any, approved by the Supervisory
Board, or
(ii) in the absence of any such approval by the
Supervisory Board, by the amount of such party's respective allocable share of
* of the difference between most recent projected Gross Profits and budgeted
Gross Profits; provided, that neither party may charge any such additional
expenses as additional Chiron Operating Expenses or Ortho Operating Expenses, as
the case may be, to the extent such expenses exceed such party's allocable share
of the amount by which actual Operating Profits (disregarding the affects of any
Unforeseen Expenses) exceed the budgeted Operating Profit. Each party's
allocable share of such amount shall equal the ratio of its respective budgeted
Operating Expenses to budgeted Total Operating Expenses. By way of example, if
an Approved Budget provides as follows:
<TABLE>
<CAPTION>
<S> <C>
Net Sales *
Gross Profit
Chiron Operating Expenses
Ortho Operating Expenses
Budgeted Operating Profit
</TABLE>
and projected Gross Profit equals * , Ortho may, in its discretion, incur
additional Ortho Operating Expenses as follows:
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
24.
<PAGE>
Difference between projected
and budgeted Gross Profit: *
* of that
difference: *
Ortho's allocable share
(budgeted Ortho Operating
Expenses to budgeted Total
Operating Expenses): *
Additional permitted Ortho
Operating Expenses: *
ARTICLE III
NEW TECHNOLOGIES
3.1 NOTIFICATION. Subject to bona fide confidentiality and other
obligations to third parties, other than their respective Affiliates, each party
agrees to use reasonable efforts to notify the other promptly as it becomes
aware of competitive or complementary technology and developments pertaining to
the development or manufacture of Antigens, Antibodies or Products and related
test configurations and related assay systems and technology related to
instrument or other diagnostic read-out systems. Subject to the approval of the
Supervisory Board each party agrees to pursue and attempt to acquire if not
already acquired, (and will use its best efforts to obtain a right to sublicense
to the other party and to Abbott), from third parties such rights to
Immunoassay technology and/or patents or both as either (a) is or becomes
necessary to permit (i) Chiron to develop and manufacture Antigens and
Antibodies, (ii) such Antigens and Antibodies to be incorporated into Products
or (iii) Ortho to make, use and sell Products or (b) represents a substantial
improvement in the performance characteristics of Antigens, Antibodies or
Products, but including in either case, technology related to instrument or
other diagnostic reading systems. Nothing in this
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
25.
<PAGE>
Section 3.1 shall preclude either party from acquiring Immunoassay technology or
patents or both and charging costs incurred in connection therewith as Chiron
Expenses or Ortho Expenses; provided, however, that without the prior approval
of the Supervisory Board (or that of Ortho acting in its sole discretion under
Subsection 2.4(b)(iii) or any neutral acting under Section 2.4), any costs
incurred in connection therewith shall not be charged as Chiron Expenses or
Ortho Expenses, and provided further, the party acquiring any such technology
shall promptly notify the other party of such acquisition.
ARTICLE IV
RIGHTS IN PATENTS AND KNOW-HOW
4.1 Subject to the rights granted herein, with respect to Patents and
Know-How:
(a) Each party shall own the entire right, title and interest in
and to all Patents and Know-How invented solely by it; and
(b) Any Patent or Know-How invented jointly by the parties shall
be jointly owned by the parties.
4.2 Each party (the "filing party") shall at its discretion, file,
prosecute, maintain and defend against opposition proceedings the Patents it
owns, covering inventions and discoveries arising in connection with the
Know-How it owns in such countries as the filing party shall determine. During
the term of this Agreement, the filing party shall, at the reasonable request of
the other party, file for such additional patents with respect to the Know-How
owned by the filing party in such additional countries as the
26.
<PAGE>
other party reasonably deems necessary to protect its licensed rights under this
Agreement.
The filing party shall keep the other party apprised of the status of
each Patent and shall give reasonable consideration to any suggestions or
recommendations of the other party concerning the preparation, filing,
prosecution, maintenance and defense thereof. If, during the term of this
Agreement, the filing party intends to allow any Patent to lapse or become
abandoned without having first filed a substitute, the filing party shall,
whenever practicable, notify the other party of such intention at least sixty
(60) days prior to the date upon which such Patent shall lapse or become
abandoned, and the other party shall thereupon have the right, but not the
obligation, to assume responsibility for the prosecution, maintenance and
defense thereof.
4.3 No party makes any warranty with respect to the validity,
perfection or dominance of any patent or other proprietary right included in its
Know-How as Patents or with respect to the absence of rights in third parties
which may be infringed by the manufacture or sale of any product.
4.4 Each party agrees to bring to the attention of the other party
any patent or patent application it discovers, or has discovered, and which
relates to the subject matter of this Agreement, and to cooperate with each
other so that each party can determine whether valid rights of a third party may
be infringed.
ARTICLE V
LICENSE
5.1 CHIRON KNOW-HOW AND PATENTS. During the term of this Agreement,
Chiron hereby grants to Ortho an exclusive worldwide license, without the right
to
27.
<PAGE>
sublicense except to its Principal Affiliates, and subject to the restrictions
contained herein and to the existing agreements identified in Exhibit B attached
hereto, to the Chiron Know-How and any Chiron Patents to make, have made, use
and sell Products within the Field of Use, and to the degree necessary, any
further license necessary to make the warranties made by Chiron and Ortho in the
Abbott Immunodiagnostics Agreement true and complete in all respects.
5.2 ORTHO GRANT TO CHIRON. During the term of this Agreement, Ortho
hereby grants to Chiron and its Affiliates a non-exclusive, * license, without
the right to sublicense, throughout the world to use all Ortho Know-How and
Ortho Patents for performing Chiron's research, manufacturing and other
obligations to Ortho under this Agreement and Chiron's obligations under the
Abbott Immunodiagnostics Agreement and for no other purpose, provided, however,
that subject to the confidentiality, but not the use, restrictions of Article
XI, Chiron shall have the right to use clinical data relating to the Antigens
and Antibodies for internal purposes, including research purposes and for the
development of improved Antigens, Antibodies and technologies for the
manufacture thereof.
ARTICLE VI
SUPPLY OF ANTIGENS AND ANTIBODIES
6.1 SUPPLY. Chiron, within the limitations contained in this Article,
shall supply Ortho with such quantities of Raw Material manufactured under GMP
conditions as Ortho may require for manufacture and sale of Products. Ortho
agrees during the term of this Agreement to obtain solely from Chiron all Raw
Material that Ortho requires. Notwithstanding the foregoing, Ortho need not
obtain from Chiron Raw
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
28.
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Material identified in Exhibit F hereto. Chiron agrees during the term of this
Agreement to supply Raw Material solely to Ortho for use within the Field of
Use. Notwithstanding the foregoing, Chiron may also supply Raw Material to any
third parties (1) listed in Exhibit B for the purposes listed therein; (2) who
are subject to a duty permitting their use thereof only for research purposes
and not for commercialization of the results of such research by Chiron or any
third party; (3) for all uses outside the Field of Use, but only if such third
party is under an obligation not to use such Raw Material within the Field of
Use and, with respect to any such use, and also as to (2) above, Chiron uses
reasonable efforts to abate such use and, as to any such agreements entered into
after the date hereof, subject to applicable law, Chiron will obtain and attempt
to enforce the contractual right to terminate any such supply in the event of
material breach of such obligation by such third party; (4) if and to the
extent approved in writing by Ortho; or (5) to Abbott under the Abbott
Immunodiagnostics Agreement.
6.2 SPECIFICATIONS. For each Raw Material, Chiron shall propose, in
writing, reasonable initial release specifications. Upon proposing such initial
release specifications, Chiron shall be obligated to meet Ortho's requirements
of such Raw Material complying with such initial release specifications. After
delivery of a Raw Material by Chiron, Ortho and Chiron shall agree, in writing,
on acceptance criteria and final release specifications for the Raw Material
based on actual testing of delivered Raw Material, which together shall comprise
the Raw Material specifications (the "Specifications"). Until such agreement is
reached, the initial release specifications proposed by Chiron shall be the
Specifications for the Raw Material.
29.
<PAGE>
6.3 QUANTITY.
(a) For all Products intended for commercial sale, Ortho shall
submit a requirements forecast for the relevant Raw Material for the upcoming
year. The requirements forecast shall be updated each quarter and extended one
quarter so as to provide a continuous forecast for a one-year period. At the
latest, one hundred twenty (120) days prior to a scheduled delivery date, Ortho
will place its firm quantity orders for such scheduled delivery.
(b) If Ortho shall request delivery of the Raw Material in
amounts that exceed * , of the initially forecasted quarterly requirements,
Chiron shall use its best efforts to manufacture and supply such additional
amounts. If Chiron is unable to supply the additional amount of Raw Material
within sixty (60) days after the requested delivery date, then Ortho may obtain
such additional amounts of Raw Material from third parties pursuant to Section
7.2(a) hereof; provided, however, that failure by Chiron to deliver such
additional amounts of Raw Material shall not constitute a default and shall not
entitle Ortho to have the second sourcing rights described in Section 7.2(b) or
to have access to the escrowed manufacturing process described in Section 7.3
hereof.
6.4 DELIVERY TERMS. All deliveries to Ortho of Raw Material by Chiron
hereunder shall be F.O.B. at Chiron's plant in Emeryville, California, or other
Chiron designated place of delivery within the United States. Title to, and risk
of loss or damage of, any shipment of Raw Material shall pass to Ortho upon
acceptance of delivery at Chiron's facility. Costs associated with risk of loss
or damage of any shipment and the actual cost of freight, insurance, packaging
and any custom duties and
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
30.
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taxes incurred by either party and its Affiliates with respect to the Raw
Materials or Products shall be Chiron Expenses or Ortho Expenses, as the case
may be.
6.5 REJECTION OF RAW MATERIAL.
(a) If Ortho wishes to reject any delivery of Raw Material as
not conforming to the Specifications determined in accordance with Section 6.2,
Ortho must notify Chiron within thirty (30) days after receipt of delivery of
any shipment of non-conforming Raw Material; if the Specifications for such Raw
Material call for testing at a later date, then Ortho must notify Chiron within
ten (10) days of such later date and must include in such notification a report
of analysis of the allegedly non-conforming Raw Material determined in
accordance with the methods set forth in the Specifications. Chiron shall notify
Ortho within thirty (30) days after receipt of such report whether it accepts
Ortho's claim.
If Chiron disagrees with Ortho's determination of the alleged
non-conformity, then an independent laboratory, mutually agreed upon by the
parties, shall analyze a sample, to be furnished by Ortho, of the identical
batch of allegedly non-conforming Raw Material delivered to Ortho, and both
parties shall be bound by such laboratory's results of such analysis. If Ortho
shall not have an identical batch for analysis, then Chiron shall provide a
sample from the shipment for testing.
If Chiron or the independent laboratory confirms the delivery's
non-conformity, Chiron shall replace the non-conforming Raw Material with
conforming Raw Material within forty-five (45) days after the date of Chiron's
notification to Ortho of its acceptance of Ortho's claim of non-conformity or
its receipt of the report of the independent laboratory confirming the
non-conformity. The replacement of the Raw Material by Chiron pursuant to this
Article shall represent the sole remedy of Ortho against
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<PAGE>
Chiron, its Affiliates and licensees for non-conforming Raw Material, except
that failure to so replace non-conforming Raw Material may, at Ortho's
discretion, constitute a Supply Shortfall under Section 7.2.
(b) Unless Chiron requests the return to it of a non-conforming
batch of Raw Material, Ortho promptly shall destroy the entire batch of
non-conforming Raw Material included in the delivery and shall provide Chiron
with written certification of such destruction. Upon receipt of Chiron's request
for return of non-conforming Raw Material, Ortho promptly shall dispatch to
Chiron the entire remaining batch of Raw Material contained in the delivery.
6.6 GMP CONDITIONS.
(a) Chiron shall manufacture Raw Material for use in clinical
testing and for use in Products for commercial sale under FDA Good Manufacturing
Practices pursuant to the Criteria for Contractual Agreements (attached as
Exhibit C hereto) or pursuant to a facilities license issued to Chiron by the
FDA.
(b) In order to determine and ensure compliance with FDA and
Quality Assurance standards, Chiron shall upon reasonable advance notice
permit authorized representatives of the FDA or Ortho to audit Chiron's
manufacturing process for Raw Material and Chiron shall promptly act upon
reasonable suggestions to correct deficiencies discovered by such audit, if
any. Despite this right of Ortho to audit Chiron's manufacturing process for
Raw Material, the compliance of Chiron with Good Manufacturing Practices
(GMP) and of Raw Material with specifications shall be the sole
responsibility of Chiron. Raw Material not manufactured under GMP standards
shall be deemed non-conforming.
32.
<PAGE>
ARTICLE VII
LIMITATIONS ON SUPPLY OF ANTIGENS AND ANTIBODIES
7.1 SUPPLY OF RAW MATERIAL. Chiron shall use its best efforts to
supply Ortho with quantities of Raw Material ordered by Ortho pursuant to
Article VI hereof, but will not be responsible for any direct, indirect,
consequential, punitive or other damages resulting from its inability to
manufacture or supply requested quantities of conforming Raw Material. If Chiron
shall fail to deliver requested quantities of Raw Material, the sole remedy of
Ortho shall be replacement under Section 6.5 or second sourcing and
manufacturing rights under Sections 7.2 and 7.3.
7.2 CHIRON BREACH OF DELIVERY OBLIGATION.
(a) Subject to the terms of Article VI and notwithstanding
Section 13.7 hereof, if Chiron fails in any material respect to supply to Ortho,
within the periods specified below following the scheduled delivery date, Raw
Material ordered by Ortho pursuant to Article VI for use in Products for
commercial sale in sufficient quantity or in such quality as contained in the
applicable Specifications (a "Supply Shortfall"), Ortho shall give Chiron
written notice of any alleged Supply Shortfall and Ortho shall have the right to
manufacture or acquire the Raw Material involved from an alternate or second
source and the right to make or have made such Raw Material as necessary to
remedy such Supply Shortfall, following the notice and cure periods and pursuant
to the terms provided in paragraph (b) below. (Chiron shall keep Ortho
reasonably advised of its progress in curing any Supply Shortfall and will
notify Ortho as early as reasonably possible if it will be unable to cure a
Supply Shortfall within the respective expiration dates provided in clauses
7.2(b).)
33.
<PAGE>
(b) If Chiron shall have been unable to substantially cure a
Supply Shortfall within forty-five (45) days following receipt by it of
written notice thereof by delivering or arranging for the delivery to Ortho
of conforming Raw Material in sufficient commercial quantities to meet
scheduled forecasts, then Chiron hereby grants to Ortho a non-exclusive,
revocable (as herein provided) license to Chiron Know-How, Chiron Patents,
and to the escrow manufacturing process of Section 7.3 to make or have made
Raw Material for use in or sale of Products in the Field of Use. This right
and license shall be terminable by Chiron when and to the extent Chiron is
ready, willing and able to resume supply of the Raw Material involved to
Ortho and its Affiliates and such supplies meet the applicable
Specifications. Notwithstanding the foregoing, the right and license granted
to Ortho shall not be terminable and Ortho may continue to manufacture or to
purchase Raw Material from a second source for the longer of (a) the
remainder of any fixed term alternate sourcing supply agreement or (b) the
period ending when Chiron has demonstrated its ability to fill Ortho's orders
for conforming Raw Material for one year after the latest Supply Shortfall
with respect thereto. When negotiating second source contracts, Ortho will
use its reasonable efforts subject to sound business judgment to protect
Chiron's interest in recovering the exclusive right to manufacture Raw
Material by limiting the duration of such contracts and the minimum quantity
to be supplied thereunder. All costs of acquiring Raw Material from an
alternate source shall be an Ortho Expense and otherwise the provisions of
Section 8.1 shall not be affected. Ortho shall pay to Chiron the full amounts
specified in Section 8.1 below, including, without limitation, payments in
respect of sales of Products containing Raw Material, whether such Raw
Material is supplied by Chiron or by a secondary source pursuant to this
Section 7.2. This Section 7.2 shall not
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<PAGE>
apply to any failure to deliver Raw Material not intended to be incorporated
in Products for commercial sale.
(c) To effectuate the alternate manufacture provisions of
this Section 7.2, Chiron shall promptly upon Ortho's request, with respect to
any Raw Material, provide Ortho with all information and materials sufficient
to enable Ortho to prepare, file and prosecute with the FDA an establishment
license application for such Raw Material. In addition to such assistance in
respect to obtaining an establishment license, Chiron shall, at Ortho's
request, assist Ortho in preparing to be an alternate manufacturer by
providing Ortho with manufacturing experience. To this end Chiron shall, if
so requested by Ortho, give Ortho sufficient information, assistance and
organisms so that Ortho may run at least three, full scale batch runs.
7.3 ESCROW OF MANUFACTURING PROCESS.
(a) With respect to all Raw Materials, within 30 days of
submitting an establishment license application to the FDA, but in any event
not later than 60 days prior to the first commercial sale of Product
containing or utilizing such Raw Materials, Chiron will place (i) with a
mutually agreed upon escrow agent a description of its process of the
manufacture of each Raw Material in sufficiently clear and detailed terms
that it can be readily followed an carried out by a trained biologist to make
said Raw Material, and (ii) with a depository, all organisms containing the
genetic material necessary to enable such biologist to so make said Raw
Material. Furthermore, should Chiron alter, modify or change its process for
manufacturing said Raw Material, Chiron will amend the description in escrow
and the material deposited to include such alteration, modification or
change. The description held in escrow and the organisms held in a depository
pursuant to this Section 7.3 shall be available to Ortho only in the
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event and to the extent necessary to remedy a Supply Shortfall pursuant to
Section 7.2. In such event, Chiron shall, upon reasonable request, provide
reasonable assistance to Ortho, such as instructing appropriately trained
personnel, as may be necessary to enable Ortho to manufacture said Raw
Material. Title to any and all copies or embodiments of the description shall
remain in Chiron. Title to any and all organisms, progeny of organisms, and
genetic material derived from organisms shall remain in Chiron. Ortho shall
not allow, without prior written approval of Chiron, use of the information
in the description, the organism or any genetic material derived therefrom
for any purpose other than carrying out the limited manufacturing rights
granted pursuant to Section 7.2. For example and without limitation, Ortho
shall not allow the alteration or mutation of the organism or its progeny, or
the cloning or sequencing of any genetic material derived from the organism
or its progeny without the prior written approval of Chiron. In the event of
any unauthorized use of the information in the description, the organism, its
progeny or any genetic material derived therefrom, all resulting data,
biological material, and/or inventions shall be the property of Chiron and
shall be promptly and fully delivered to Chiron.
(b) Upon termination by Chiron of the limited manufacturing
rights granted Ortho pursuant to Section 7.2, Ortho shall immediately cease
to use the information supplied by the escrow agent and the organism and
shall return such information and all copies or other embodiments thereof to
the escrow agent, and shall return the organism, its progeny and any genetic
material derived therefrom, to the depository or destroy it, at Chiron's
option.
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ARTICLE VIII
PAYMENTS
8.1 PROFIT SHARING.
(a) Within ninety (90) days after the end of each Calendar
Quarter, Ortho shall calculate the Preliminary Profits for such quarter based
upon Net Sales invoiced, Ortho Expenses accrued, Chiron Expenses accrued and
Abbott Immunodiagnostic Payments received by Chiron and Ortho in respect of said
Calendar Quarter.
(b) Within ninety (90) days after the end of each Calendar
Quarter, Ortho shall pay to Chiron (i) an amount equal to Chiron Expenses
accrued during such quarter, plus (ii) an amount equal to fifty percent (50%) of
positive Preliminary Profits, if any, for such quarter, provided, however, that
Ortho may offset against any payment owed to Chiron under this paragraph (b) the
amount of any Abbott Immunodiagnostic Payments made directly to Chiron by Abbott
in respect of such quarter; provided, further, however, that if the sum of such
Abbott Immunodiagnostic Payment exceeds the sum of Chiron Expenses plus fifty
percent (50%) of positive Preliminary Profits, if any, for such quarter, Ortho
shall make no payment to Chiron and Chiron shall pay such excess amount to Ortho
in cash within thirty (30) days after receipt by Chiron of the report from Ortho
for such quarter.
(c) Within ninety (90) days after the end of each Calendar Year
in which Final Profits is a positive amount, Ortho shall pay to Chiron, or
Chiron shall pay to Ortho, as the case may be, an amount equal to the difference
between fifty percent (50%) of such Final Profits and the sum of all positive
Preliminary Profits paid to (or retained by) Chiron pursuant to Section
8.1(b)(ii) above.
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(d) If, for any Calendar Year in which Final Profits is a
positive amount, the amount of the payment provided for in paragraph (c) above
exceeds * of such Final Profits, such payment shall include interest on the
amount of such payment at the average prime rate for such year (as reported in
the Wall Street Journal) as if the amount of such payment had been a loan
outstanding for a six month period.
(e) Ortho will establish and maintain the intercompany
transfer price by Ortho to its Affiliates for Products in good faith and,
subject to applicable law and regulation in the relevant foreign jurisdiction
and reasonable sales expenses anticipated to be incurred by its Affiliate, at
a level that is consistent with maximizing profits of each of the parties
under this Agreement. In the event Chiron establishes that Ortho has not
complied with the foregoing, Ortho shall pay to Chiron an amount equal to the
additional sums Chiron would have received if Ortho had so complied. Such
additional payment shall be Chiron's only remedy for any breach by Ortho of
this Section 8.1(e); provided, that continued material failure of Ortho to
comply with this provision based on its intentional or grossly negligent
conduct shall be grounds for termination under Section 12.3 below.
8.2 * For each calendar year in which Final Profit is a negative
amount,
(a) Chiron shall pay to Ortho* * for such calendar year
received (or retained) by it pursuant to Section 8.1(b)(ii) above;
(b) In any calendar year, if the Budget, if any, approved by the
Supervisory Board for such year contemplated a negative Final Profit, Chiron
shall pay
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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to Ortho in cash an amount equal to * of the lesser of actual negative Final
Profit or budgeted negative Final Profit for such year, within 30 days after
receipt by Chiron of Ortho's year end accounting for such calendar year;
(c) In any calendar year through December 31, 1992, if the
Budget, if any, approved by the Supervisory Board did not contemplate a negative
Final Profit, or if the Supervisory Board did not approve a Budget for that
year, Chiron shall not make any payment in cash in respect of such negative
amount to Ortho (other than the reconciling payment, if any, under subsection
8.2(a) above) and no such negative amount shall be carried forward into any
subsequent calendar year;
(d) In any calendar year beginning after December 31, 1992, (A)
if the Supervisory Board did not approve a budget for such year, or (B) if the
Budget, if any, for such year approved by the Supervisory Board did not
contemplate a negative Final Profit, then Chiron shall not make any payment in
cash to Ortho (other than the reconciling payment under subsection 8.2(a) above)
in respect of such negative Final Profit, but * ) of such negative amount
(together with interest on the unrecovered portion thereof at the prime rate
from the date of final year end accounting until recovered in full) may be
charged by Ortho against any future Preliminary or Final Profit amounts that are
positive, provided, that no such charge shall reduce any such future Preliminary
or Final Profit to a negative amount; and
(e) In any calendar year beginning after December 31, 1992,
if the Budget, if any, for such year approved by the Supervisory Board
contemplated a negative Final Profit, and the actual amount of the negative
Final Profit exceeds the negative amount contemplated in such Budget, then
Chiron shall not make any payment to Ortho (other than the reconciling
payment under Section 8.2(a) above) in respect of
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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the amount by which actual negative Final Profit exceeds the budgeted negative
Final Profit, but * of such excess amount (together with interest thereon at
the prime rate from the date of the final year end accounting until recovered in
full) may be charged by Ortho against any future Preliminary or Final Profit
amounts that are positive, provided, that no such charge shall reduce any such
future Preliminary or Final Profit to a negative amount.
8.3 ABBOTT IMMUNODIAGNOSTIC PAYMENTS. Except as disclosed in Exhibit
H, Ortho and Chiron each represents and warrants to the other that neither it
nor any of its Affiliates is a party to any agreement with Abbott or any of
Abbott's Affiliates relating to the development, manufacture, marketing,
distribution or sale of any Raw Material or any Products which contain or
utilize any Raw Material, other than the Abbott Immunodiagnostics Agreement.
Ortho and Chiron each covenants and agrees that, notwithstanding any other
provision to the contrary contained herein, it will not enter into any such
Agreement with Abbott or its Affiliates without the prior written consent of the
other party.
8.4 REALLOCATION OF FINAL PROFITS.
(a) For each calendar year after calendar year 1992 for which
there is no Plan and Budget approved by the Supervisory Board and in which Net
Abbott Immunodiagnostic Payments exceed * and Presumed Abbott Total Profits
exceed * this Section 8.4(a) shall apply. When this Section 8.4(a) applies,
Ortho shall pay to Chiron * of the excess, if any, of Presumed Abbott Total
Profits over the sum of Final Profits plus the Annual Margin.
(b) That portion of any payment due to Chiron under paragraph
(a) that does not exceed * of Net Abbott Immunodiagnostic Payments, if
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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any, for such calendar year shall be paid within 90 days of the end of such
year. The unpaid balance of such payment shall be due and payable from time to
time within 90 days of the end of each succeeding Calendar Quarter for which
there are Net Abbott Immunodiagnostic Payments, in amounts that do not exceed
* of such Net Abbott Immunodiagnostic Payments, together with interest on the
amount so paid calculated at the average prime rate (as reported in the Wall
Street Journal) from the end of the calendar year in respect of which such
payment was calculated, until paid.
(c) For purposes of this Section 8.4, in each year in which
Ortho or its Affiliates do not Ship any Product (other than Products which
contain or utilize HCV Antigens or Antibodies and no other Antigens or
Antibodies) to unaffiliated third parties in Japan, all calculations made under
this Section 8.4 (including, without limitation, the calculation of Final
Profits, the number of Units of Product Shipped by Ortho, and the number of
Presumed Additional Abbott Units) shall be determined by excluding from the
relevant calculation all Units of Product Shipped to unaffiliated third parties
in Japan, and all expenses and revenues associated therewith.
8.5 FORM OF PAYMENT. All payments due to Chiron or Ortho hereunder
shall be paid in United States dollars in immediately available funds, for
Chiron's or Ortho's account, to a bank in the United States designated in
writing by Chiron or Ortho, as the case may be, provided that where calculations
are made with respect to Net Sales or other amounts that are made or expended in
countries outside the United States, all invoiced prices and other component
charges, allowances, credits, costs, taxes and duties used to determine Net
Sales or such other expenses shall be converted from the invoiced currency to
the equivalent in United States dollars, computed at the
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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exchange rate reported in the Wall Street Journal on the last business day in
the Calendar Quarter during which such Net Sales were made or expenses incurred.
8.6 REPORTS.
(a) Within sixty (60) days after the end of each Calendar
Quarter, Chiron shall provide Ortho with a written report setting forth in
reasonable detail Chiron Expenses for such quarter and Abbott Immunodiagnostic
Payments received by Chiron during such quarter.
(b) Within ninety (90) days after the end of each Calendar
Quarter, Ortho shall provide Chiron with a written report setting forth in
reasonable detail the Preliminary Revenues and Preliminary Expenses for such
quarter and the resulting calculation of the amount to be paid to Chiron or to
Ortho pursuant to Section 8.1 above.
(c) Within ninety (90) days after the end of each fourth
Calendar Quarter, Ortho shall provide Chiron with a written report setting forth
in reasonable detail the number, description and aggregate Net Sales for such
quarter; Abbott Immunodiagnostic Payments received by Ortho during such quarter,
and Ortho Expenses for such quarter, and Total Revenues and Total Expenses for
the calendar year ending with such quarter, and the resulting calculation of the
amount to be paid to Chiron or Ortho pursuant to Section 8.1 above; together
with the calculation contemplated by Section 8.4 and data in reasonable detail
in support of such calculation.
8.7 COMBINATION PRODUCTS. In the event a Combination Product is
marketed by Ortho, the Supervisory Board shall agree upon the portion of net
sales of such Combination Product that will be treated as Net Sales for purposes
of Section 8.1 and the portion of Chiron expenses and Ortho expenses in respect
of such Product that
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may be charged as Chiron Expenses or Ortho Expenses, respectively. Should the
Supervisory Board be unable to agree to such allocations, the matter shall be
resolved by a certified public accountant in the manner provided for in Section
8.8(b).
8.8 EXAMINATION OF BOOKS.
(a) Chiron and Ortho each shall keep and maintain complete and
accurate books of account in respect of their activities under this Agreement in
accordance with generally accepted accounting principles consistently applied.
The parties shall retain such records for so long as the parties shall mutually
determine.
(b) As soon as reasonably practicable following the execution of
this Agreement, but in no event later than December 31, 1989, the parties shall
agree to a statement of accounting principles and methodologies which shall be
in accordance with generally accepted accounting principles and which shall be
attached hereto as Exhibit A. The agreed statement shall be equally applicable
to all calculations made by each party under this Agreement. In the event of any
disagreement in the preparation of Exhibit A or in future as to such statement
or its application to the activities of either party, such disagreement shall be
resolved by agreement between the independent certified public accounting firm
employed regularly by each party, or, failing such agreement, by another
independent certified public accounting firm selected by such firms. Such
disagreement shall be resolved in a manner which is consistent with the
provisions of this Agreement and Exhibit A or, in the absence of any applicable
provision, in a manner which is fair and reasonable to both parties. Each party
shall provide to the other annually a certification of an independent certified
public accountant to the effect that the calculations made by such party under
this Agreement were consistent with the principles and methodologies set forth
in Exhibit A.
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(c) In addition to any other inspection rights of Chiron, Chiron
shall have the right, for any period during which Ortho or its Affiliates shall
be manufacturing or distributing any Product or incurring any Ortho Expenses and
for three years thereafter, to examine the relevant books and records of account
of Ortho and its Affiliates engaged in activities under this Agreement at normal
business hours, upon reasonable demand, to determine whether appropriate
accounting and payment have been made by Ortho hereunder. Any expenses incurred
by Chiron in connection with any such examination shall not be charged as Chiron
Expenses.
(d) In addition to any other inspection rights of Ortho, Ortho
shall have the right for any period during which Chiron or its Affiliates shall
be incurring any Chiron Expenses or receiving Abbott Immunodiagnostic Payments
and for three years thereafter, to examine the relevant books and records of
account of Chiron and its Affiliates engaged in activities under this Agreement
at normal business hours, upon reasonable demand, to determine whether
appropriate accounting and payment have been made by Chiron hereunder. Any
expenses incurred by Ortho in connection with any such examination shall not be
charged as Ortho Expenses.
8.9 INTEREST ON OVERDUE PAYMENTS. If any sum due hereunder is not
paid in full on the due date, * (as published from time to time by the WALL
STREET JOURNAL), or the maximum permitted by law, whichever is lower, shall
accrue and become payable upon any unpaid balance from the date of the debtor's
receipt of a respective written notice from the recipient until such time as
payment is made in full.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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ARTICLE IX
PATENT LITIGATION
9.1 DEFENSE OF PATENT LITIGATION.
(a) In the event that either party or an Affiliate or customer
of either party is sued by a third party charging infringement of a patent
resulting from the manufacture of any Antigens, Antibodies or Products by the
parties or any of their Affiliates, the party which is sued (or whose customer
is sued) shall promptly notify the other.
(b) Each party shall control its own defense in any such patent
litigation. Neither party will object to the intervention of the other in any
such litigation and, to the extent that their interests are consistent, each
will cooperate and provide reasonable assistance to the other with respect to
such litigation. The reasonable costs and expenses of defense of such suit and
all amounts reasonably paid to third parties in damages (including royalties)
and settlement may be charged as an Ortho Expense or a Chiron Expense, as the
case may be, provided, that where applicable, such expenses are fairly allocable
to the Products.
9.2 PATENT CLAIMS AGAINST THIRD PARTIES. If, in the opinion of either
party hereunder, any Patent to the extent licensed hereunder has been infringed
by the making, using or selling of a product of a third party, such party
hereunder shall give notice to the party owning the Patent alleged to be
infringed, whereupon such Patent-owning party may, at its discretion, take such
steps as it may consider necessary to prosecute such infringement. If the
Patent-owning party does not bring suit within ninety (90) days after notice by
the other party, the other party shall then have the right, and will become
entitled by the Patent-owning party, to bring suit and the Patent-owning
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party shall cooperate in connection therewith including but not limited to
permitting the other party to sue in its name, if necessary. In any such
litigation brought by either party, the other party shall have the right to be
represented by counsel. All damages recovered as a result of any such
infringement shall be shared equally by Chiron and Ortho. All fairly allocable
expenses incurred in connection with such infringement may be charged as Ortho
Expenses or Chiron Expenses, as the case may be.
ARTICLE X
WARRANTY, INDEMNIFICATION AND INSURANCE
10.1 WARRANTIES. CHIRON DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR PURPOSE, AND ANY WARRANTIES CONCERNING THE INHERENT PROPERTIES OF
ANTIBODIES OR ANTIGENS SUPPLIED HEREUNDER, EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT. CHIRON MAKES NO WARRANTY AS TO THE MERCHANTABILITY
OR FITNESS FOR PARTICULAR PURPOSE OF ANY PRODUCT OF CHIRON KNOW-HOW,
IMPROVEMENTS THEREON OR CHIRON PATENTS.
10.2 PRODUCT LIABILITY AND INDEMNIFICATION.
(a) Notwithstanding the definition of Excluded Expenses in this
Agreement, but subject to the provisions of subsections (b) through (g) below,
there may be included as Ortho Expenses and Chiron Expenses the amount of any
and all liabilities, damages, losses, costs and expenses, including attorney's
fees (collectively, the "Liabilities"), arising from any suit or claim by a
third party alleging personal injury or
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property damage based on the use, manufacture or sale of any Product by Ortho or
its Affiliates, directly or indirectly including without limitation any product
liabilities resulting from the inherent properties of any Raw Material or
Product, the use by Ortho or any of its Affiliates of any Antigens or
Antibodies, the development or manufacture of any Product by Ortho or Chiron or
any of their respective Affiliates or the use of any Product manufactured, used
or sold by Ortho, Chiron or their Affiliates by any human being regardless of
whether such use was completed by the parties.
(b) Notwithstanding the provisions of (a) above, Ortho shall
indemnify and hold Chiron and its Affiliates harmless from and against
Liabilities finally determined by a court of competent jurisdiction or by
specific reference in a settlement agreement to which both parties have
consented to have arisen solely from the fault or negligence (but not the strict
liability or liabilities resulting from the inherent properties of any Raw
Material or Product) of Ortho or its Affiliates or licensee (other than Abbott)
relating to the use, manufacture or sale of any Product.
(c) Notwithstanding the provisions of (a) above, Chiron shall
indemnify and holds Ortho and its Affiliates harmless from and against
Liabilities finally determined by a court of competent jurisdiction or by
specific reference in a settlement agreement to which both parties have
consented to have arisen solely from the fault or negligence (but not the strict
liability or liabilities resulting from the inherent properties of any Raw
Material or Product) of Chiron relating to the manufacture of any Raw Material.
(d) For the avoidance of doubt, (i) expenses incurred by either
party as an indemnity pursuant to subsections 10.2(b) or (c) shall not be
included in Ortho Expenses or Chiron Expenses, (ii) reasonable costs and
expenses incurred by the
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party defending a claim subject to Section 10.2(b) or (c) shall be included in
Ortho Expenses or Chiron Expenses, as the case may be, and (iii) neither Section
10.2(b) or (c) shall apply if it has been determined by a court of competent
jurisdiction or by specific reference in a settlement agreement to which both
parties consented that there was fault or negligence of both parties, or their
respective Affiliates, as, for example, might be the case if Ortho was found to
be negligent in failing to discover the effect of any negligence of Chiron.
(e) Nothing in Section 10.2(b) or (c) shall require either party
to indemnify the other for lost profits.
(f) Each party shall notify the other promptly upon receipt of
any notice of any product liability claim or lawsuit subject to this Section
10.2. Such notice shall be a condition to any indemnity provided for herein.
Ortho shall be responsible for defending any such claim except as to any claim
for which Ortho expects to seek indemnity under subsection 10.2(c) above, in
which case Chiron shall defend such claim. Chiron or Ortho, as the case may be,
may participate in any such litigation controlled by the other at its election
and expense. Ortho may settle any such suit controlled by it with Chiron's
consent, which shall not be unreasonably withheld. Chiron may settle any such
suit controlled by it with Ortho's consent, which shall not be unreasonably
withheld.
(g) Ortho may charge as Ortho Expenses the reasonable costs of
product liability insurance (if any), out-of-pocket costs of product recall or
market withdrawal and amounts paid to third parties to settle or otherwise
dispose of all liability of both parties in all product liability suits without
limit if Ortho is acting under Subsection 2.4(b)(iii) and otherwise up to a
maximum of * per suit,
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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notwithstanding the definition of Excluded Expenses in this Agreement.
Settlement expenses in excess of such amount shall require the consent of the
Supervisory Board, which if obtained may be charged as Ortho Expenses. Chiron
may charge as Chiron Expenses the reasonable costs of product liability
insurance (if any).
10.3 TRADE DRESS.
Chiron shall indemnify and hold harmless Ortho with respect to any
liabilities arising solely out of the use of Chiron's name and logo on any
labeling, advertising or promotional materials, which use is alleged to infringe
a third party trademark; provided, that this indemnity shall not apply to any
use of Chiron's name or logo other than in the manner provided for in Section
13.3 below. Ortho shall notify Chiron promptly upon receipt of notice of any
such claim or lawsuit, which notice shall be a condition to the indemnity
provided for herein. Chiron shall be responsible for defending any such claim.
Chiron may in its sole discretion settle any such suit. Costs incurred in
connection with any such suit shall not be charged as Chiron Expenses.
ARTICLE XI
CONFIDENTIALITY
11.1 CONFIDENTIALITY PROVISIONS. During the term of this Agreement
and for a period of five years following the termination of this Agreement, each
party shall maintain in confidence all information disclosed by the other party
hereto which such party knows or has reason to know are trade secrets or other
proprietary information of the other, including without limitation information
relating to Antigens and Antibodies, Products, Patents, Know-How, and the
business plans of the other party, and shall not use such trade secrets or
proprietary information except as permitted by this Agreement
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or disclose the same to anyone other than those of its Affiliates (or, in the
case of Ortho, only its Principal Affiliates), licensees, employees, agents or
subcontractors as are necessary in connection with such party's activities as
contemplated in this Agreement. Each party shall obtain a written agreement
prior to disclosure to any such Affiliates, employees, licensees (other than
Abbott), agents and subcontractors to hold in confidence and not make use of
such trade secrets or proprietary information for any purpose other than those
permitted by this Agreement. Each party shall use a similar effort to that which
it uses to protect its own trade secrets or proprietary information to ensure
that its Affiliates, licensees (other than Abbott), employees, agents and
subcontractors do not disclose or make any unauthorized use of trade secrets or
proprietary information of the other party hereto. Each party shall notify the
other promptly upon discovery of any unauthorized use or disclosure of the
other's trade secrets or proprietary information.
11.2 EXCEPTIONS. The obligation of confidentiality contained in this
Article XI shall not apply to the extent that (a) any party (the "Recipient") is
required to disclose information by law, order or regulation of a governmental
agency or a court of competent jurisdiction or (b) the Recipient can demonstrate
that: (i) the received information was at the time of receipt already in the
public domain or thereafter enters the public domain other than as a result of
actions of the Recipient, its Affiliates, employees, licensees (other than
Abbott), agents or subcontractors, in violation hereof; (ii) the received
information was rightfully known by the Recipient or its Affiliates (as shown by
its written records) prior to the date of receipt by Recipient from the other
party hereunder; or (iii) the received information is disclosed to the Recipient
or its
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Affiliates on an unrestricted basis by a source unrelated to any party to this
Agreement and not under a duty of confidentiality to the other party.
ARTICLE XII
TERMINATION, RIGHTS AND OBLIGATIONS UPON TERMINATION
12.1 TERM.
(a) Unless earlier terminated pursuant to the terms of this
Article XII, this Agreement shall continue to be effective until December 31,
2039, PROVIDED that the term of this Agreement shall be automatically renewed
for a period of five years from such termination date or any renewal termination
date unless one of the parties hereto shall notify the other party, in writing,
five years in advance of such termination date, of its intent to terminate this
Agreement.
(b) Section 12.1(a) notwithstanding, this Agreement with respect
to the European Economic Community shall terminate on a country-by-country basis
on the expiration of the last to expire Patent Right based upon a patent
application pending as of the Effective Date of this Agreement; provided,
however, that until December 31, 2039, each party shall have the right on a
country-by-country basis to renew this Agreement for successive one year periods
by providing the other party with written notice of such renewal prior to any
termination date.
12.2 TERMINATION BY MUTUAL AGREEMENT. This Agreement may be terminated
upon mutual written agreement between the parties.
12.3 TERMINATION BY DEFAULT. If either party intentionally or as a
result of its own gross negligence defaults in the performance of, or fails to
be in compliance with, any material agreement, condition, or covenant of this
Agreement, and such
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default or noncompliance shall not have been substantially remedied, or steps
initiated to substantially remedy the same to the other party's reasonable
satisfaction, within sixty (60) days (subject to the provisions of Section 13.12
hereof) after receipt by the defaulting party of a written notice thereof from
the other party, the party not in default may terminate this Agreement, at the
option of such party and by written notice to the defaulting party.
12.4 TERMINATION BY COURT ORDER. This Agreement may be terminated as
to a particular Antigen or Antibody by the party to be restrained upon the
issuance of a final order or decree issued in a bona fide proceeding by or
before any competent governmental agency or judicial authority which restrains
or enjoins in any material respect the manufacture of said Antigen or Antibody
by Chiron or Chiron's sale or transfer to Ortho, or the purchase or use of said
Antigens or Antibodies by Ortho or the manufacture or sale by Ortho of the
respective Product(s), provided that any such termination shall not apply to
those countries in which the restrained party's performance is not restrained or
impaired by such order or decree.
If prior to the issuance of such decree either party believes that its
issuance cannot be avoided then either party may request the other party to
agree to the termination of this Agreement as provided in the foregoing
sentence, which agreement will not be unreasonably withheld.
12.5 EFFECTIVE DATE OF TERMINATION. Unless otherwise provided herein,
termination by either party pursuant to this Article XII shall be by written
notice to the other party and shall be effective on the date of delivery of such
notice to the other party hereto.
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12.6 RIGHTS AND OBLIGATIONS ON TERM, TERMINATION OR SUSPENSION.
(a) Unless expressly provided to the contrary, the provisions of
Articles IX, X and XI (in either case with respect to a cause of action arising
during the term of this Agreement) shall survive the termination of this
Agreement as well as those rights and/or obligations which by their intent or
meaning have a validity beyond the termination of this Agreement.
(b) Termination by either party pursuant to this Article XII
shall not prejudice any other remedy that a party might have in law or equity,
except that neither party may claim compensation for lost opportunity or like
consequential damages arising out of the fact of such termination.
(c) Promptly upon termination of this Agreement pursuant to
Sections 12.2 or 12.4 of this Article, except as to information in the public
domain, each party, its Affiliates and licensees shall return all confidential
documentation and information received from the other party, its Affiliates or
licensors which may be in the possession of such party or that of its Affiliates
or licensees; provided, however, that the returning party may retain an archival
copy of said confidential information in its legal department to enable
compliance with its confidentiality obligations.
(d) Promptly upon termination of this Agreement pursuant to
Section 12.3 of this Article, except as to information in the public domain,
each party, its Affiliates and licensees shall return all confidential
documentation and information received from the other party, its Affiliates or
licensors which may be in the possession of such party or that of its Affiliates
or licensees; provided, however, that the returning party may retain an archival
copy of said confidential information in its legal department to enable
compliance with its confidentiality obligations; and further provided, however,
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that the party not in default need not return any confidential documentation
and information of the defaulting party and, notwithstanding Section 11.1
hereof, may continue to use such documentation and information solely for the
purposes and subject to applicable license and supply terms of this Agreement
upon payment of a reasonable royalty if the default of the defaulting party,
as determined by agreement or admission, binding arbitration, or, in the case
of (a) below, the final and non-appealable decision of a court of competent
jurisdiction was either: (a) the willful or grossly negligent breach of the
confidentiality provisions hereof or (b) the willful or grossly negligent
breach by Chiron of the exclusive nature of the license to Ortho hereunder or
by Ortho of the requirements purchase obligation hereunder, such that the
effect of such breach, to the extent not cured or mitigated, is to deprive
the non-defaulting party of the fundamental benefits of its bargain under
this Agreement.
(e) In the event of a partial termination of this Agreement in
the European Economic Community pursuant to Section 12.1(b) above, each
Principal Affiliate of Ortho that uses or sells Product in the European Economic
Community or makes or has made Product in the European Economic Community for
resale in the European Economic Community, shall, effective as of the date of
such partial termination, no longer be deemed to be a Principal Affiliate for
purposes of this Agreement, but shall be treated simply as an Affiliate of
Ortho.
12.7 ACCOUNTING. Upon any termination of this Agreement pursuant to
this Article XII:
(a) The parties shall, within ninety (90) days after
termination, prepare reports and make payments in a manner substantially the
same as provided for
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in Article VIII hereof, to account for unaccounted Net Sales, Abbott
Immunodiagnostic Payments, Chiron Expenses and Ortho Expenses;
(b) The Supervisory Board shall cause to be prepared and furnish
to the parties hereto a statement of any assets owned jointly by the parties
pursuant to this Agreement, other than Patents and Know-How (subject to
paragraph (c) below), and shall proceed as promptly as practicable, but in an
orderly and business-like manner, to liquidate such assets, and to make
arrangements for the assumption of any remaining joint obligations of the
parties under existing licenses and agreements with third parties entered into
pursuant to this Agreement. Subject to the approval of the Supervisory Board,
either party or any Affiliate thereof shall be permitted to acquire all or a
part of such assets upon no less favorable terms than offered by a third party,
or, if no such terms are offered, at fair value.
(c) Except as otherwise expressly provided herein (including,
without limitation, Section 12.6(d)), (i) each party shall remain the owner of
its Patents and Know-How; (ii) all Patents and Know-How that are jointly owned
shall remain jointly owned; and (iii) all express or implied licenses to such
Patents and Know-How hereunder shall terminate.
(d) Until the payments contemplated by this paragraph (d)
have been made in full, Ortho shall pay to Chiron or Ortho may retain, as the
case may be, in the following order of priority, and promptly upon receipt by
Ortho, that portion of Abbott Immunodiagnostic Payments equal to (i) Chiron
Expenses incurred in connection with the performance of Chiron's obligations
under that Agreement, (ii) any accrued by unpaid amounts due to Chiron under
Section 8.4 above, and (iii) any accrued by unpaid amounts due to Ortho under
Section 8.2 above.
55.
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(e) The parties shall cooperate in securing an amendment
(which shall be effective promptly upon payment in full of the amounts set
forth in paragraph (d) above) to the Abbott Immunodiagnostics Agreement to
provide for direct payment to Chiron of that portion of the Abbott
Immunodiagnostics Payments equal to the sum of (i) Chiron Expenses incurred
in connection with the performance of Chiron's obligations under that
Agreement and (ii) * ) of the difference between the Abbott
Immunodiagnostic Payments and such Chiron expenses.
(f) Subject to the foregoing, all proceeds of the liquidation
of assets as set forth in paragraph (b) above shall be distributed in the
following order of priority:
(i) to pay, pro rata, all previously unreimbursed
Chiron Expenses and Ortho Expenses;
(ii) to pay to Chiron any accrued but unpaid amounts
due to Chiron pursuant to Section 8.4 above;
(iii) to pay to Ortho any accrued but unpaid losses
carried forward pursuant to Section 8.2 above; and
(iv) * to Chiron and * to Ortho.
12.8 EFFECT OF TERMINATION ON ABBOTT AGREEMENT. Any termination of
this Agreement pursuant to Article XII above shall not, in and of itself,
reduce or terminate the license granted to Abbott under the Abbott
Immunodiagnostics Agreement, including Abbott's right to use any portion of
the Know-How licensed by Chiron to Ortho.
* Confidential portions of material have been omitted and filed
separately with the Securities and Exchange Commission.
56.
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12.9 CESSATION OF PRODUCT SALES AND ALLOCATION OF CERTAIN RIGHTS.
(a) CESSATION BY ORTHO OF HCV PRODUCT SALES. Ortho shall have
the right, at any time in any year following the year in which payments have
been made under Section 8.4(a) or in any year in which Ortho may show by
creditable evidence that payments will be made in respect of such year under
such section, to reduce or cease entirely the commercial sale by Ortho and
its Affiliates of any or all Products which contain or utilize HCV Antigens
or HCV Antibodies, provided, however, that in the event Ortho ceases all such
sales, neither party nor any of their respective Affiliates thereafter,
directly or indirectly, may make, have made, use or sell Products which
contain or utilize HCV Antigens or HCV Antibodies, other than pursuant to the
Abbott Immunodiagnostic Agreement, without the express written agreement of
the other party.
(b) MINIMUM SALES OF NON-HCV PRODUCTS. Ortho shall have the
right, at any time in any year following a year in which payments have been
made under Section 8.4(a) or in any year in which Ortho may show creditable
evidence that payments will be made in respect of such year, to reduce or
cease entirely the commercial sale of any or all Products, other than those
which contain or utilize HCV Antigens or HCV Antibodies ("non-HCV Products").
In the event Ortho fails to achieve and maintain a minimum of at least *
per year in the aggregate of Net Sales of all non-HCV Products for any two
consecutive years in which Section 8.4(a) applies, Chiron may cause the
Agreement to become non-exclusive with respect to all non-HCV Products and
all Antigens and Antibodies other than HCV Antigens and HCV Antibodies. In
the event that this Agreement becomes non-exclusive pursuant to this
paragraph (b), Ortho shall grant to Chiron and its Affiliates, upon Chiron's
request, a non-exclusive, irrevocable, worldwide license, with the right to
sublicense, under Ortho
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
57.
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Know-How and Ortho Patents to make, have made, use and sell Products, other than
Products which contain or utilize HCV Antigens or HCV Antibodies, within the
Field of Use. The license shall bear a royalty equal to * of Chiron's pretax
profit from the sale or licensing of Products or Antigens or Antibodies subject
thereto.
(c) DEFINITIVE AGREEMENT. At such time as any such license is
granted pursuant to paragraphs (b) above, each party shall negotiate in good
faith and execute a definitive license agreement embodying the provisions
outlined above and such other terms and conditions as are reasonable and
customary.
ARTICLE XIII
MISCELLANEOUS
13.1 ENTIRE AGREEMENT. As of the Effective Date, the License
Agreement and the Distribution Agreement shall be terminated and of no
further force and effect. This Agreement contains the entire agreement of the
parties regarding the subject matter hereof and supersedes all prior
agreements, understandings and negotiations regarding the same. The parties
acknowledge that there have been various statements, both oral and written,
pertaining to the making of this Agreement and the parties' performance
hereunder. The parties agree that neither has relied on any such statements,
but instead have relied upon the representations and warranties explicitly
set forth herein. This Agreement may not be changed, modified, amended or
supplemented except by a written instrument signed by both parties hereto.
13.2 NON-COMPETITION
(a) ABSENCE OF EXISTING COMPETITION. Ortho represents and
warrants to Chiron that, to the best of its knowledge and belief, except as set
forth in Exhibit E hereto and other than the Principal Ortho Affiliates, neither
J&J nor any
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
58.
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Affiliate of J&J in the principal countries designated as such on Exhibit E is
presently engaged in the business of developing, manufacturing, marketing or
distributing Immunological assays for the detection of hepatitis viruses or
retroviruses in humans or human samples. As used herein, the best knowledge and
belief of Ortho shall be limited to the actual knowledge and belief of all of
its directors, R. R. Rodenbaugh, Vice President - Business Development and J.
Goldstein, Group Vice President, without any such persons having made any
inquiry or investigation concerning such matters. Ortho represents and warrants
to Chiron that a complete list of its directors is included in Exhibit E hereto.
(b) FUTURE BUSINESS. Ortho covenants and agrees that, except as
expressly set forth below, neither Ortho nor any Affiliate of Ortho listed on
Exhibit D hereto (whether or not such Affiliate has accepted a sublicense
hereunder and agreed to be bound by the terms hereof) nor any of their
respective successors in interest shall engage in the business of developing,
manufacturing, marketing or distributing Antigens or Antibodies or any Product
which contains or utilizes Antigens or Antibodies other than, through Ortho and
with Chiron, as contemplated by this Agreement. Notwithstanding the generality
of the foregoing, Chiron agrees that Ortho's Affiliates, the Advance Care
Products Division, and Johnson & Johnson Professional Diagnostics Division, both
being divisions of Ortho Pharmaceutical Corporation, a New Jersey corporation
("Advance Care" and "J&J Professional Diagnostics", respectively, may, either
independently or with third parties, engage in the business of developing,
manufacturing, marketing or distributing Products which contain or utilize
Retrovirus Antigens for sale into either (i) the over-the-counter consumer
market (the "OTC Field") or (ii) the physicians' office market (the "MD Field")
or (iii) both the OTC Field and
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the MD Field; provided, that in the event Advance Care or J&J Professional
Diagnostics elect to engage in such business, Ortho shall, at Chiron's request,
grant back to Chiron (x) an exclusive, irrevocable, worldwide, * license as to
Chiron Know-How and Chiron Patents, (y) a non-exclusive, irrevocable, worldwide,
* license as to Ortho Know-How and Ortho Patents existing as of the date of
this Agreement, to the extent such license is necessary, to utilize such
Retrovirus Antigens in Products and (z) a non-exclusive, irrevocable, worldwide,
* license as to Ortho Patents and Ortho Know-How acquired during the term of
this Agreement as to which the costs thereof are charged as Ortho Expenses; said
licenses in each case of (x), (y) and (z) to make, have made, buy and sell
Products and, in whichever of the OTC Field or the MD Field or both that Advance
Care and/or J&J Professional Diagnostics are so engaged and to do such acts and
things and convey such other rights under this Agreement as may be necessary for
Chiron to engage in such business in such field, either independently or with a
third party.
(c) CONFIDENTIALITY. Ortho further covenants and agrees that
Ortho will not sell, assign, license, transfer or otherwise convey to J&J or any
Affiliate of J&J any Chiron or Ortho Patent or Ortho Know-How; provided,
however, that with the agreement of the receiving Affiliate to be bound by the
terms of this Agreement, Ortho may transfer Ortho Patents or Ortho Know-How to
any Principal Ortho Affiliate; and provided further, that in no event shall
Ortho transfer Ortho Patents or Ortho Know-How to J&J Professional Diagnostics
or Advance Care, unless either or both has waived its right to make the election
referred to in (b) above.
13.3 USE OF PARTIES NAME. Subject to any applicable law or regulation
to the contrary, the parties agree that in all advertising, promotional
materials and
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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product labeling where the corporate name and/or logo of Ortho appear (other
than as a trademark), the Chiron corporate name and/or logo shall also appear
and be given equal prominence with Ortho's, and neither party's name and/or logo
shall be positioned above the other or positioned further from the center of the
display than the other. The prominence of each party's name and/or logo shall be
in the same proportion to the trademark as is shown on Exhibit G attached
hereto. The foregoing shall not apply to the use of Ortho's name as a trademark,
provided, however, that in the event any variation of the word "Ortho" is used
as all or part of a trademark, then in all advertising, promotional material or
product labeling in which such trademark appears, the corporate name and/or logo
of both parties also shall appear in accordance with the foregoing. Exhibit G is
an example of a label and print advertisement which the parties agree is
reflective of the foregoing agreements. This Section 13.3 shall apply to any
corporate name or logo of Ortho or any successor to Ortho. Except as provided
above, Ortho may advertise the products in its discretion and neither Chiron nor
Ortho shall have any right, express or implied, to use in any manner the other's
name, tradenames, or trademarks.
13.4 ASSIGNABILITY. Notwithstanding any provision to the contrary
contained herein or in the Abbott Immunodiagnostics Agreement, this Agreement
may not be assigned or otherwise transferred nor may rights hereunder be
sublicensed and any purported assignment, transfer or sublicense shall be void
if made, without the prior written consent of each party, which consent, subject
to applicable law, may be granted or withheld in the absolute discretion of such
party. Chiron, however, hereby consents to the Abbott Immunodiagnostics
Agreement. Notwithstanding the foregoing, (a) neither party will unreasonably
withhold its consent to any assignment by the other party
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to one of its Affiliates of all of its rights hereunder, and (b) no consent need
be obtained by either party to assign its rights and obligations hereunder to a
successor to substantially all of the business of said party and in such cases
assignment will be automatic. Any permitted or consented assignment, transfer or
sublicense shall be binding upon and inure to the benefit of and be enforceable
by any permitted or consented successors and assignees of the parties hereto.
13.5 SEVERABILITY. If any part of this Agreement shall be held
unenforceable, the remainder of the Agreement shall nevertheless remain in full
force and effect. The parties agree that any such unenforceable part shall, if
possible, be reformed to be rendered enforceable while still substantially
maintaining the intent of the parties.
13.6 FURTHER ASSURANCES . Each party hereto agrees to execute,
acknowledge and deliver such further instruments, and to do all such other acts
as may be necessary or appropriate in order to carry out the purposes and intent
of this Agreement.
13.7 FORCE MAJEURE. Neither Ortho nor Chiron shall be liable for any
failure or delay in performance under this Agreement which is due in whole or in
part directly or indirectly to any cause of any nature beyond the reasonable
control of such party, including, without in any way limiting the generality of
the foregoing, fire, explosion, earthquake, storm, flood, strike, lockout, labor
difficulties, war, insurrection, riot, act of God or the public enemy, or any
law, act, order, export or import control regulations, proclamation, decree,
regulation, ordinance, or instructions of local, federal or foreign governmental
or other public authorities, or judgment or decree of a court of competent
jurisdiction (not arising out of breach by such party of this Agreement). In the
event of the happening of such a cause, the party so affected shall give prompt
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written notice to the other party, stating the period of time the same is
expected to continue and shall take all reasonable measures to ensure that the
effects of such case of force majeure are kept as minimal as possible.
13.8 NOTICE AND REPORTS. All notices required by this Agreement shall
be in writing. All notices and reports shall be mailed by first class mail
postage prepaid, to the parties at the following addresses or such other
addresses as may be designated in writing by the respective parties:
To Ortho: Ortho Diagnostic Systems Inc.
Route 202
Raritan, New Jersey 08869
Attn: President
Copy to: Johnson & Johnson
Chief Patent Counsel
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933-7003
To Chiron: Chiron Corporation
4560 Horton Street
Emeryville, California 94608
Attn: Office of the President
Copy to: Office of Legal Counsel
Copy to: Brobeck, Phleger & Harrison
One Market Plaza
Spear Street Tower
San Francisco, California 94105
Attn: William G. Green, Esq.
Any notices shall be deemed given when received by the other party or (if sent
by registered or certified first class mail) when sent.
13.9 EXPENSES. Each party shall bear its own expenses if not expressly
agreed otherwise in this Agreement.
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13.10 WAIVER. The waiver by either party of a breach of any provision
contained herein shall in no way be construed as a waiver of any subsequent
breach of such provision or the waiver of the provision itself.
13.11 PUBLICITY. Each party agrees to consult with the other and to
seek to coordinate all publicity concerning the existence and terms of this
Agreement to the extent reasonably practical. Neither party shall disclose the
specific financial terms of this Agreement to any third party without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld. This Section 13.11 shall not apply to the extent that any
disclosure is (a) of information in the public domain, (b) required to prevent a
third party conflict with this Agreement or to comply with any applicable law,
regulation or order of a bona fide government authority or (c) made under a
confidentiality agreement binding upon the recipient to whom such disclosure is
reasonably necessary (i) in order to define the scope of rights which could be
granted to such recipient without violating this Agreement or (ii) for any
similar valid business purpose. The parties acknowledge that Chiron may file
this document with the Securities and Exchange Commission pursuant to applicable
regulations, provided that in so doing Chiron shall use reasonable efforts to
delete financial terms to the extent permitted by law or regulation.
13.12 RELATIONSHIP OF THE PARTIES. Both parties are independent
contractors under this Agreement. Notwithstanding the parties' agreement to
share certain profits relating to their collaboration, nothing contained in this
Agreement is intended nor is it to be construed so as to constitute Chiron and
Ortho as partners or joint venturers with respect to this Agreement. Employees
of each party remain employees of said party and shall be considered at no time
agents of or render a fiduciary duty to the
64.
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other party. Neither party hereto shall have any expenses or implied right or
authority to assume or create any obligations on behalf of or in the name of the
other party or to bind the other party to any other contract, agreement or
undertaking with any third party.
13.13 DISPUTE RESOLUTION.
(a) DISPUTES. The parties recognize that a bona fide dispute
as to certain matters may from time to time arise during the term of this
Agreement which relate to any party's rights and/or obligations hereunder. In
the event of the occurrence of such a dispute, any party may, by written notice
to the other, have such dispute referred to their respective officer designated
below or their successors, for attempted resolution by good faith negotiations
within thirty (30) days after such notice is received. Said designated officers
are as follows:
For Ortho - President or Chairman
For Chiron - President
In the event the designated officers are not able to resolve such
dispute within such thirty-day period, any party may invoke the provisions of
paragraph (b) below within such thirty day period.
(b) ALTERNATIVE DISPUTE RESOLUTION. 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:
(i) If a party intends to begin an ADR to resolve a
dispute, such party shall provide written notice (the "ADR Request") to counsel
for the other party informing such other party of such intention and the issues
to be resolved.
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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 8.2
as to which party must cure a breach of this Agreement shall be suspended as to
the subject matter of the dispute.
(ii) Within ten (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 twenty
(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 either party. Either party shall have ten (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.
(iii) No later than ninety (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 thirty (30) days after the close of
hearings. In making the award the neutral shall rule on each disputed issued and
shall adopt in whole or in part the proposed ruling of one of the parties on
each disputed issue.
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(iv) It is the intention of the parties that discovery,
although permitted as described herein, will be extremely limited except in
exceptional circumstances. The neutral shall permit such limited discovery
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 (5) persons, each such
deposition not to exceed six (6) 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, he or she may order such additional
discovery as he or she deems necessary. 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 agreed upon by the parties of 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 his or her decision,
apply the substantive law of New Jersey without giving effect to its principles
of conflicts of law, and without giving effect to any rules or laws relating to
arbitration. 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.
(v) At least fifteen (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 such party intends to rely in any oral or
written presentation to the neutral and a list of all witnesses, if any, such
party intends to call at such hearing and a brief summary of each witness's
testimony. At least five (5) business days prior to the
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hearing, each party must submit to the neutral and serve on the other party a
proposed ruling on each issue to be resolved. Such writing shall be limited to
representing the proposed rulings, shall contain no argument or analysis of the
facts of issues, and shall be limited to not more than fifty (50) pages. Not
more than five (5) 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. Such post hearing briefs shall not be more than ten (10)
pages.
(c) COSTS AND FEES. The neutral shall determine the
proportion in which the parties shall pay the costs and fees of the ADR. Each
party shall pay its own costs (including, without limitation, attorneys fees)
and expenses in connection with such ADR.
(d) CONFIDENTIALITY. The ADR proceeding shall be
confidential and the neutral shall issue appropriate protective orders to
safeguard each party's Confidential 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.
(e) AWARD. Any judgment upon the award rendered by the
neutral may be entered in any court having jurisdiction thereof.
13.14 CHOICE OF LAW. This Agreement shall be construed and
interpreted according to the laws of the State of New Jersey.
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13.15 REPRESENTATIONS. It is the mutual desire and intent of the
parties to provide certainty as to their future rights and remedies against each
other by defining the extent of their mutual undertakings as provided herein.
Each of the parties hereto acknowledges and agrees (i) that no representation or
promise not expressly contained in this Agreement has been made by the other
party hereto or by any of its agents, employees, representatives or attorneys;
(ii) that this Agreement is not being entered into on the basis of, or in
reliance on, any promise or representation, expressed or implied, covering the
subject matter hereof, other than those which are set forth expressly in this
Agreement; and (iii) that each party has had the opportunity to be represented
by counsel of its own choice in this matter, including the negotiations which
preceded the execution of this Agreement.
13.16 EXECUTION OF AGREEMENT AND GUARANTEE BY JOHNSON AND JOHNSON.
The obligations of Chiron under this Agreement are expressly conditioned upon
(i) the execution by J&J of an Agreement, in form and substance satisfactory to
Chiron, whereby J&J *
and (ii) the execution of a guarantee by J&J of
payments due to Chiron under Article VIII.
13.17 CAPTIONS. Paragraph captions are inserted for convenience only
and in no way are to be construed to define, limit or affect the construction or
interpretation hereof.
13.18 COUNTERPARTS. This agreement (a) may be executed by each party
hereto upon a separate copy, in which event all of such copies shall constitute
a single
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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counterpart of this Agreement; (b) shall become effective when each of the
parties has signed the same or a separate copy hereof; and (c) may be executed
in two or more counterparts, in which event it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
13.19 IMPORT AND EXPORT CONTROLS. Both parties shall comply with all
applicable laws and regulations governing the shipment and importation of
pharmaceutical products.
13.20 EUROPEAN ECONOMIC COMMUNITY. The parties jointly shall notify
this Agreement to the Commission of the European Economic Community and shall
apply for and cooperate in securing a negative clearance and/or exemption under
Section 85(3) of the Treaty of Rome unless counsel is of the opinion that the
Agreement is exempt pursuant to the terms of one or more block exemptions.
Chiron and Ortho shall select mutually acceptable counsel to prepare and
prosecute such submission on behalf of both parties. In the event the parties
are unable to agree with respect to any issue relating to the notification,
counsel for the parties shall attempt to resolve the issue by adopting a
position on behalf of the parties which most closely reflects the existing
provisions of this Agreement and shall not adopt any other position; provided,
however, that if the parties ultimately are unable to agree, each party shall be
free to submit its own views with respect to such disputed issue. Any expenses
incurred by either party in connection with such submission may be charged as
Chiron Expenses or Ortho Expenses, as the case may be. In the event such
exemption is granted but expires before this Agreement would otherwise
terminate, the parties shall jointly apply for and cooperate in obtaining a
renewal of such exemption in the manner provided above.
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13.21 GENERAL WARRANTY. Subject to the limitations set forth herein,
each party warrants that it has the right to enter into this Agreement and grant
the rights and undertake the obligations set forth herein.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first written above.
CHIRON CORPORATION
By. /s/ Gregory Lawless
------------------------------------
Gregory Lawless
President
ORTHO DIAGNOSTIC SYSTEMS INC.
By: /s/ William W. Crouse
------------------------------------
William W. Crouse
President
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EXHIBIT A
ACCOUNTING METHODOLOGY (SECTION 8.8)
A-1.
<PAGE>
EXHIBIT B
EXISTING AGREEMENTS
Pursuant to an Agreement between Cooper Development Company ("CDC") and
Chiron Corporation ("Chiron"), dated August 4, 1986, Chiron granted to CDC a
"Semi-exclusive License in the Territory to use the Chiron technology to
manufacture, use and sell Test Kits within the Field of Use."
Definitions:
"CHIRON REAGENTS" shall mean the following core and surface antigens:
p25gag; p3lpol; env 2; env 5; all as further described in Exhibit A hereto.
"DIPSTICK TEST" shall mean a test kit (be it in EIA or FLIP format) used to
detect the presence of antibodies to viruses associated with AIDS, as described
and configured in the IND Application.
"FIELD OF USE" shall mean diagnostic and/or blood bank screening for AIDS
in any health care market using Test Kits, including, but not restricted to,
blood banks, alternative testing sites and hospitals (including transfusion
centers, transplantation centers, emergency rooms and plasmapheresis centers).
B-1.
<PAGE>
"FLIP TEST" shall mean an assay system containing fluorescent liposomes for
signal measurements to detect the presence of antibodies to viruses associated
with AIDS, but excluding (a) systems containing fluorescence assays not based on
liposome technology, (b) liposome tests without fluorescent signal measures, or
(c) systems based on particle concentration assays.
"SEMI-EXCLUSIVE LICENSE" shall mean a license containing the right to
exclude all other persons except (a) Chiron and its Affiliates and (b) one
licensee (other than CDC) and the affiliates of such other licensee (which shall
not have the power to sublicense) selected by Chiron.
"TERRITORY" shall mean all countries except the Republic of Korea.
"TEST KITS" shall mean any and all blood screening or diagnostic Dipstick
Test and FLIP Test, the development, manufacture, sale or use of which utilize
Chiron Technology or Chiron Reagents and which detect the presence of antibodies
to viruses associated with AIDS.
B-2.
<PAGE>
"CHIRON TECHNOLOGY" shall mean all of the patent rights and/or
rights to patent applications ("Patents"), inventions, information, data,
trade secrets, know-how and other proprietary rights owned by Chiron at
present directly related to the development, identification, manufacture,
production, use and marketing of the Chiron Reagents and Test Kits and Minor
Improvements thereon, as hereinafter defined, developed by Chiron during the
term of this Agreement.
"MAJOR IMPROVEMENTS" shall mean those improvements in the Chiron
Technology which relate to the Chiron Reagents and which if they were to be
incorporated into Test Kits to be distributed in the United States would
require the approval of an IND or successor approved by the Office of
Biologics the U.S. Food and Drug Administration ("F.D.A.") or the equivalent
approved by that other bureau of the FDA as may have jurisdiction before Test
Kits incorporating such improvements could be marketed.
"MINOR IMPROVEMENTS" shall mean those improvements in the Chiron
Technology which relate to the Chiron Reagents and which if they were to be
incorporated into Test Kits to be distributed in the United States would not
require the approval of an IND or successor approved by the Office of
Biologics of the U.S. Food and Drug Administration ("F.D.A.") or the
equivalent approved by that other bureau of the FDA as may have jurisdiction
before Test
B-3.
<PAGE>
Kits incorporating such improvements could be marketed.
LICENSING OF MAJOR IMPROVEMENTS. In the event Chiron develops Major
Improvements to Chiron Technology, Chiron shall consider CDC as a possible
licensee, consistent with third party rights, of such Major Improvements, and
shall discuss with CDC mutually acceptable license rights.(1)
- --------------------------
1) Chiron agrees that the rights of Ortho under its agreement
with Chiron will constitute third party rights with respect to which the
rights of CDC to Major Improvements (as defined in the Chiron/CDC Agreement)
are subject.
B-4.
<PAGE>
Pursuant to an agreement between Organon Teknika N.V. ("OT"), and
CHIRON Corporation ("CHIRON"), dated August 17, 1984, CHIRON granted to OT a
"non-exclusive license, with right to grant sublicenses, under such Licensed
Patents and to such Licensed Technology as are necessary to enable OT to use
the Antigen to make, have made, and use and sell Product(s) within the
Territory."
Definitions:
"Antigen" shall mean the hepatitis B core antigen falling within
the scope of the Licensed Patents and developed by CHIRON using recombinant
DNA technology.
"Product(s)" shall mean any product produced by OT, or by any third
party under rights derived from OT, which contains the Antigen in any
quantity and is intended to be used in substantially the form produced for
the purpose of assisting in the diagnosis of disease in humans.
"Territory" shall mean all of the countries of the world except the
Republic of Korea.
B-5.
<PAGE>
ANTICIPATED AGREEMENT
(Such agreement shall be of five years or less duration and shall
not permit transfer of access to the relevant reagents or technology to
nonaffiliates by assignment, sublicense, research contract or by operation of
law in a merger, liquidation, sale of business or change in control of the
contract partner.)
Lucky Ltd.
Non-exclusive license within the Republic of Korea to sell
diagnostic ELISA test kits containing existing CHIRON AIDS reagents.
B-6.
<PAGE>
EXHIBIT C
CRITERIA FOR CONTRACTUAL AGREEMENTS
Establishment and product license applications are approved
based upon, among other things, demonstration that all manufacturing and
testing steps for each licensed product are performed in licensed facilities
and/or under the strict control and supervision of the licensee Title 21,
Code of Federal Regulations, Section 600.3(u). Therefore, in order to receive
approval for the performance of certain manufacturing steps at facilities
other than those included in your establishment license, it will be necessary
to submit a written agreement between you and each participating outside
facility. The agreement must be dated and signed by responsible individuals
at each establishment and should contain the following specifications:
1. A complete description of all steps that will be
performed at the outside facility including the operating procedures that
will be used and the degree of responsibility provided by each establishment.
This section should include details related to packaging and labeling for
shipment to and from the outside facility, manner of shipment (including
temperature monitoring in the shipping container), storage and handling.
2. Designation of a responsible individual from your
establishment that will supervise the operations performed at the outside
facilities. Please indicate whether such supervision will be direct
(on-site), or by other means that will assure us such operations are
performed under the control of the licensed manufacturer.
3. A description of all standard operating procedures and
manufacturing record forms (batch production records) that will accompany the
product to and from the outside facility. There should be provisions for you
to receive complete copies of all batch production records, including test
and laboratory observation data for each
C-1.
<PAGE>
lot of product manufactured. A complete record of manufacturing of each lot
of product must be maintained by your establishment. Summaries of the results
of testing or manufacturing operations are not acceptable in lieu of complete
copies of manufacturing records.
4. If the product is to be stored and distributed at outside
facilities, a complete description of the distribution and recall system
should be provided.
5. The agreement should include permission for authorized
representatives of this agency to inspect those portions of the outside
facility related to manufacturing and testing of the product.
6. Written assurance that each outside manufacturing
establishment complies with Good Manufacturing Practice Regulations (GMPs)
should also be provided
7. Indication whether the outside facility is registered
with this Agency should be provided.
C-2.
<PAGE>
EXHIBIT D
PRINCIPAL ORTHO AFFILIATES
BELGIUM ITALY
Ortho Diagnostic Systems N.V. Ortho Diagnostic Systems S.p.A.
Antwerpseweg 19-21 Via Palmanova, 67
B-2340 Beerse, Belgium 20132 Milano, Italy
CANADA JAPAN
Ortho Diagnostic Systems, Inc., Ortho Diagnostic Systems K.K.
a Division of Ortho Pharmaceutical 1-38, Shiba-Koen, 3-Chome
(Canada) Ltd. Minato-Ku, Tokyo, Japan
19 Green Belt Drive
Don Mills, Ontario, Canada
M3C 1L9
FRANCE ENGLAND
Ortho Diagnostic Systems, S.A. Ortho Diagnostic Systems Ltd.
69, Rue De La Belle Etoile Enterprise House
ZAC Paris Nord II Station Road
95700 Roissy En France Loudwater
France High Wycombe
Bucks, HP10 9UF
England
GERMANY JOHNSON & JOHNSON PROFESSIONAL
DIAGNOSTICS, INC.
Ortho Diagnostic Systems 2675 Long Lake Road
G.m.b.H. Roseville, Minnesota 55113
Karl-Landsteiner-Strasse 1
P.O. Box 13 40
D-6903 Neckargemund
West Germany
SPAIN ADVANCED CARE PRODUCTS, a Division of
Ortho Pharmaceutical Corporation
Ortho Diagnostic Systems, a Route 202
Division of Johnson & Johnson, S.A. Raritan, New Jersey 08869
Crta. Madrid-Valencia KM 24,700
28500 Arganda del Rey
Madrid, Spain
D-1.
<PAGE>
EXHIBIT E
CERTAIN ORTHO AFFILIATES
*
ORTHO DIRECTORS
Mr. Ronald G. Gelbman
Company Group Chairman
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Mr. William W. Crouse
President
Ortho Diagnostic Systems, Inc.
U.S. Route 202
Raritan, New Jersey 08869
Mr. Robert L. Zocca
General Attorney and Ortho Diagnostics Board Attorney
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
PRINCIPAL COUNTRIES
*
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
E-1.
<PAGE>
EXHIBIT F
EXCLUDED RAW MATERIALS
1. *
2. *
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
F-1.
<PAGE>
ORTHO* HCV ANTIBODY
ELISA TEST SYSTEM
EXHIBIT G
IMMUNOENZYME ASSAY FOR DETECTION OF ANTIBODY TO HEPATITIS C VIRUS
(ANTI-HCV) IN HUMAN SERUM OR PLASMA
STORE AT 2 TO 8 DEG.C
480 TEST KIT CONTAINS:
5 Microwell Plates Coated with Hepatitis C Virus (HCV) Recombinant Antigen
(8 strips of 12 wells each in holder)
10 packets PBS Buffer--phosphate-buffered saline (PBS) in crystalline form
2 vials Polysorbate 20 (4.0 ml each)--polyoxyethlhylene sorbitan
monolaurate
1 bottle Specimen Diluent (150 ml)--phosphate-buffered saline with protein
stabilizers
1 bottle Conjugate (Murine Monoclonal) (125 ml)--anti-human IgG (murine
monoclonal) conjugated to horseradish peroxidase with protein
stabilizers
2 vials OPD Tablets (15 tablets per vial)--contains o-phenylenediamine+2HCLI
1 bottle Substrate Buffer (155 ml)--citrate-phosphate buffer with 0.02%
hydrogen peroxide
1 vial Positive Control (Human) (1.0 ml)
Source: Heat-treated human serum or plasma containing anti-HCV and
nonreactive for hepatitis B surface antigen (HBsAg) and antibody to
human Immunodeficiency virus type 1 (HIV-1)
Preservative: 0.02% thimerosal
1 vial Negative Control (Human) (1.0 ml)
Source: Human serum or plasma nonreactive for HBsAg, antibody to HIV-1
and anti-HCV
Preservative: 0.02% thimerosal
CAUTION: HANDLE AS IF CAPABLE OF TRANSMITTING INFECTIOUS AGENTS.
For In Vitro Diagnostic Use
Co-developed with Chiron Corporation
Emeryville, CA 94608
[LOGO] [LOGO]
Manufactured by
Ortho Diagnostic Systems Inc.
A Johnson & Johnson Company
Raritan, NJ 08869
+ Trademark
U.S. License 156
<PAGE>
EXHIBIT H
CERTAIN ABBOTT AGREEMENTS
1. JOHNSON & JOHNSON AND ABBOTT, EXECUTED 17 AUGUST 1989
Assuring the pass through to each other of HCV Antigen and Antibody
technology employed in each parties products.
2. ADVANCED CARE PRODUCTS, DIVISION OF ORTHO PHARMACEUTICAL CORPORATION AND
ABBOTT, EXECUTED 17 AUGUST 1989
General development and marketing agreement concerning
over-the-counter diagnostic products which, in its generality could
include Products.
<PAGE>
AMENDMENT TO COLLABORATION AGREEMENT
THIS AMENDMENT dated as of the 22nd day of December, 1989 (the
"Amendment"), to the Agreement dated as of the 17th day of August, 1989 (the
"Agreement"), is made by and between CHIRON CORPORATION ("Chiron"), a
Delaware corporation with offices at 4560 Horton Street, Emeryville,
California 94608, and ORTHO DIAGNOSTIC SYSTEMS INC. ("Ortho"), a New Jersey
corporation with offices at Route #202, Raritan, New Jersey 08869.
RECITALS
A. Chiron and Ortho have entered into the Agreement to
collaboratively develop and commercialize certain diagnostic products related
to hepatitis viruses and retroviruses.
B. Chiron and Ortho have identified certain assets held by E.I.
du Pont de Nemours & Co. ("Du Pont"), a Delaware corporation with offices at
1007 Market Street, Wilmington, Delaware 19898 ("Du Pont"), which Chiron and
Ortho believe would be useful in their collaboration.
C. Chiron and Ortho wish to buy such assets from Du Pont, and Du
Pont is willing to sell such assets to Chiron and Ortho.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
1.
<PAGE>
D. Chiron and Ortho believe that the purchase of such assets
requires certain modifications to the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree to amend the Agreement,
effective as of the Purchase Date, as follows:
ARTICLE I
DEFINITIONS
1.1 ADDITIONAL DEFINITIONS. Article I of the Agreement is hereby
amended to add the following new definitions:
"PURCHASE AGREEMENT shall mean the agreement attached hereto
as Exhibit A by and among Du Pont, Chiron and Ortho.
PURCHASED INTANGIBLE ASSETS shall mean those assets
identified in Article 2, subparagraphs 2.01 through 2.09 (except
for written materials delivered in connection with subparagraph
2.07) of the Purchase Agreement, except to the extent such assets
are incapable as a matter of law of being effectively transferred
independently of a transfer of the business of making and selling
Products.
PURCHASE DATE shall mean the date upon which the Purchase
Agreement is fully executed.
CHIRON PURCHASE PRICE shall mean Nine Million Dollars
($9,000,000).
ORTHO PURCHASE PRICE shall mean the sum of (i) Three Million
Dollars ($3,000,000), the price Ortho must pay for the Purchased
Intangible Assets, and (ii) the price Ortho must pay for all other
assets in accordance with the Purchase Agreement.
2.
<PAGE>
DU PONT PRODUCTS shall mean those products identified in
Exhibit B attached hereto, together with all improvements and
additions thereto and replacements thereof developed within
the scope of this Agreement.
DU PONT BUSINESS ASSETS shall mean the 'Business Assets'
as such term is defined in the Purchase Agreement.
MANUFACTURING INFORMATION, RESEARCH AND DEVELOPMENT
INFORMATION, MANUFACTURING AND SUPPLY AGREEMENT, and all other
terms defined in the Purchase Agreement and not otherwise
defined herein shall have the respective meanings assigned to
such terms in the Purchase Agreement."
1.2 AMENDMENTS TO DEFINITIONS. Article I of the Agreement is
hereby further amended as follows:
(a) Section 1.16 is amended to read as follows:
"FIELD OF USE shall mean the use of any
(a) Immunoassay for the direct or indirect detection of
retroviruses or hepatitis viruses in humans or human samples,
and (b) whether or not included in the foregoing, any
Du Pont Product."
(b) Section 1.19(b) is amended to delete the phrase
", except those listed in Exhibit F."
(c) Section 1.19(e) is amended to delete the phrase
", except those listed in Exhibit F."
(d) Section 1.39 is amended to add at the end thereof:
", including without limitation the Du Pont Products."
3.
<PAGE>
ARTICLE II
PURCHASE AND DISPOSITION OF DU PONT ASSETS
2.1 AMENDMENTS TO ARTICLE III. Article III of the Agreement is
hereby amended to add a new Section 3.2 to read in its entirety as follows:
"3.2 DU PONT BUSINESS ASSETS.
(a) Chiron and Ortho shall purchase from Du Pont the
Purchased Intangible Assets and shall own, use and dispose
of such asssets in accordance with the terms of this
Agreement and the Purchase Agreement. Irrespective of
either party's Purchase Price contribution, each party shall
have the right, independent of the other, to utilize such
Purchased Intangible Assets, together with all other Du Pont
Business Assets, to the degree necessary or appropriate to
carry out the purposes contemplated in this Agreement. Any
sublicensing or other commercial use by either party of the
Du Pont Business Assets other than to carry out the purposes
of this Agreement shall require the prior written consent of
the other party.
(b) In accordance with Paragraph 3.01 of the Purchase
Agreement, Chiron shall pay Du Pont the Chiron Purchase
Price and Ortho shall pay to Du Pont the Ortho Purchase Price.
*
* Confidential portions of material have been omitted
and filed separately with the Securities and Exchange
Commission.
4.
<PAGE>
(c) Each of Ortho and Chiron agrees to indemnify the
other and to hold it, its officers, directors and
affiliates harmless from and against any loss, claim,
damage or expense incurred as a result of such party's
failure to comply with any of its obligations to Du
Pont pursuant to the Purchase Agreement.
(d) Any intangible property developed as a result
of any improvement, repair, revision or modification
of the Purchased Intangible Assets shall be owned,
used and disposed of in accordance with the terms of
this Agreement and the Purchase Agreement, provided
that such improvement, repair, revision or modification
(i) uses Du Pont Manufacturing Information or Research
and Development Information and (ii) is paid for
using funds charged as an Ortho Expense or a Chiron
Expense.
(e) Without the prior written consent of the other
party, neither Ortho nor Chiron will (i) supplement,
amend or enter into any collateral agreement with Du
Pont regarding the Purchase Agreement or the
Manufacturing and Supply Agreement or (ii) amend any
third-party license or other agreement assigned or
transferred by Du Pont pursuant to the Purchase
Agreement with respect to the Purchased Intangible
Assets.
(f) The Du Pont Epstein-Barr Test in micro-titre
format (as identified as Schedule 1.01 to the
Purchase Agreement),
*
* Confidential portions of material have been
omitted and filed separately with the
Securities and Exchange Commission.
5.
<PAGE>
(g) Ortho and Chiron agree to exercise jointly the
rights and powers granted to them pursuant to Section
20.11 of the Purchase Agreement and to do all things
necessary to act jointly and in common pursuant to that
Section."
ARTICLE III
SUPPLY OF ANTIGENS AND ANTIBODIES
3.1 AMENDMENT TO SECTION 6.1. Section 6.1 of the
Agreement is hereby amended to delete in its entirety the third
sentence thereof and to substitute therefor the following:
"Notwithstanding the foregoing, Chiron need not manufacture
and Ortho need not obtain from Chiron any of the Raw Materials
contained in the Products identified in Exhibit F hereto until
and unless the Supervisory Board determines that a Raw
Material shall be manufactured by Ortho, Chiron or one of
their Affiliates, in which event Chiron shall have the first
right to manufacture and supply such Raw Material pursuant to
the terms of this Agreement."
ARTICLE IV
TERMINATION
4.1 AMENDMENTS TO ARTICLE XII. Article XII shall be
amended as follows:
6.
<PAGE>
(a) Section 12.9(c) is amended to insert after the words
"license agreement" in the third line thereof the words "or other agreement."
(b) A new Section 12.10 is hereby added to read in its
entirety as follows:
"12.10 EFFECT OF TERMINATION ON DU PONT BUSINESS
ASSETS.
(a) In the event Ortho elects to terminate its exclusive
rights under this Agreement or such rights become non-exclusive
pursuant to Section 12.9(b) hereof, Chiron shall have the
right in its election to operate the collaborative business
and to use the Du Pont Business Assets for that purpose
pursuant to Section 12.9(b) hereof. If Chiron elects to
exercise this option, Chiron shall have the right to purchase
from Ortho any and all Du Pont Business Assets (including all
improvements and additions thereto and replacements thereof)
then owned by Ortho at
*
If this
Agreement is otherwise terminated in accordance
with its terms, the Du Pont Intangible Assets, including
improvements, repairs, revisions or modifications pursuant to
Section 3.2(d) hereof, will be included within the assets
jointly owned by the parties under Section 12.7 of this
Agreement, except that any patents and know-how owned by
Chiron and Ortho in accordance with the terms of Section 3.2
hereof should be accounted for pursuant to Section 12.7
(notwithstanding subsection (c) thereof), and all express or
implied licenses to use such patents and know-how under this
Agreement, as amended, shall terminate.
(b) In the event of termination or partial termination of
this Agreement, Ortho agrees
* = Confindential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
7.
<PAGE>
to do all things necessary (including without limitation
executing and delivering notices and other documents requested
by Chiron or Du Pont) to enable Chiron to acquire and exercise
the jointly exercisable rights and powers granted to Ortho and
Chiron pursuant to Section 20.11 of the Purchase Agreement."
ARTICLE V
EXHIBITS
5.1 AMENDMENTS TO EXHIBITS. Exhibit F to the Agreement is
hereby deleted and replaced by a new Exhibit F in the form attached hereto.
ARTICLE VI
MISCELLANEOUS
6.1 ENTIRE AGREEMENT. The Agreement as hereby amended
contains the entire agreement of the parties regarding the subject matter
hereof and supersedes all prior agreements, understandings, representations
and negotiations regarding the same. With the exception of those sections
expressly amended by this Amendment, all terms and conditions set forth in
the Agreement are hereby restated and remain in full force and effect, and
all references herein and hereafter to this Agreement shall be to this
Agreement as hereby amended. The Agreement as hereby modified may not be
changed, modified, amended or supplemented except by a written instrument
signed by the parties hereto.
8.
<PAGE>
6.2 NO RELIANCE. Each party hereto acknowledges and
represents that it has relied solely on its own evaluation of the Du Pont
Business Assets in entering into this Amendment and the transactions
contemplated herein.
6.3 FURTHER ASSURANCES. Each party hereto agrees to execute,
acknowledge and deliver such further instruments, and to do all such other
acts as may be necessary or appropriate in order to carry out the purposes
and intent of this Amendment or the Agreement as hereby amended.
6.4 CONDITION TO EFFECTIVENESS. This Amendment shall be
effective only upon the execution and delivery of the Purchase Agreement;
provided, that in the event no Closing shall occur thereunder, this Amendment
shall be null and void and of no further effect.
6.5 COUNTERPARTS. This Amendment may be executed in two or
more counterparts, in which event it shall not be
9.
<PAGE>
necessary in making proof of this Amendment to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first written above.
CHIRON CORPORATION
BY: /s/ Gregory Lawless
--------------------------
Gregory Lawless
President
ORTHO DIAGNOSTIC SYSTEMS INC.
By: /s/ William W. Crouse
--------------------------
William W. Crouse
President
10.
<PAGE>
EXHIBIT B
DU PONT PRODUCTS
Lysate-based ELISA for HIV-1 antibodies
Lysate-based ELISA for HIV-2 antibodies
Lysate-based Western Blot for HIV-1 antibodies
Lysate-based Western Blot for HIV-2 antibodies
Lysate-based ELISA for HTLV-1 antibodies
Lyzate-based Western Blot for HTLV-1 antibodies
Env-9-based ELISA for HTLV-1 antibodies
ELISA for HIV-1/HIV-2 antibodies
ELISA for Hepatitis B core antibodies
ELISA for EBV antibodies (VCA IgG)
ELISA for EBV antibodies (VCA IgM)
ELISA for EBV antibodies (EBNA)
ELISA for EBV antibodies (EA-R)
ELISA for EBV antibodies (EA-D)
ELISA for EBV antibodies (EA-R&D)
Slide tests for EBV antibodies
HIVCHEK-TM- membrane assay for HIV-1 antibodies
HIVCHEK-TM- 1+2 membrane assay for HIV-1, HIV-2 antibodies
11.
<PAGE>
EXHIBIT F
EXCLUDED RAW MATERIALS
*
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
12.
<PAGE>
EXHIBIT 10.202**
CONFIDENTIAL TREATMENT
LICENSE AND SUPPLY AGREEMENT
This Agreement, effective as of the 17th day of August, 1989, by and among
ORTHO DIAGNOSTIC SYSTEMS INC. ("ODS"), a New Jersey corporation with offices at
U.S. Route #202, Raritan, New Jersey 08869; CHIRON CORPORATION ("CHIRON"), a
Delaware corporation having offices at 4560 Horton Street, Emeryville,
California 94608; and ABBOTT LABORATORIES ("ABBOTT"), an Illinois corporation
with offices at One Abbott Park Road, Abbott Park, Illinois 60064.
WITNESSETH
WHEREAS, CHIRON has identified a nucleic acid sequence included within the
genome of a viral species causative of hepatitis C, formerly called hepatitis
Non-A, Non-B; and
WHEREAS, ODS has licensed from CHIRON proprietary technologies directed to
hepatitis C diagnosis and blood screening; and
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
-----
[** This exhibit was filed in connection with Registrant's request for
confidential treatment for Exhibit 10.15 to the Registrant's Form 10-Q
report for the period ended June 10, 1994 and a consequent order by
the Commission dated November 30, 1994.]
<PAGE>
-2-
WHEREAS, ODS owns or controls additional proprietary technologies directed
to hepatitis C diagnosis and blood screening; and
WHEREAS, ODS and CHIRON have an ongoing research program to develop
additional technologies directed to hepatitis C diagnosis and body fluid
screening; and
WHEREAS, ABBOTT desires to enter the hepatitis C diagnosis and blood
screening markets as soon as possible, and believes that such early entry will
be of significant long-term value to ABBOTT; and
WHEREAS, ABBOTT believes that obtaining access to the above CHIRON
technologies and to the above ODS technologies will permit ABBOTT to enter the
hepatitis C diagnosis and blood screening market at an early date; and
WHEREAS, CHIRON possesses proprietary manufacturing know-how related to raw
materials for hepatitis C diagnosis and blood screening; and
WHEREAS, ABBOTT desires a long-term supply agreement with CHIRON and ODS
wherein ABBOTT purchases from CHIRON such raw materials and, under certain
circumstances as are more fully described herein, gains access to CHIRON's
proprietary manufacturing technology;
<PAGE>
-3-
WHEREAS, ABBOTT is conducting and may continue conducting research, both
independently and with collaborators, directed to hepatitis C diagnosis and
blood screening; and
WHEREAS, ODS and CHIRON are interested in obtaining access to ABBOTT's
hepatitis C research, both existing and future;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants set forth below, ODS, CHIRON and ABBOTT mutually agree as follows:
I. DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings:
1.1 "Abbott Collaborator" means any third party obligated, under the terms
of an agreement entered into pursuant to Paragraph 20.1 below, during the first
seventeen (17) years after the effective date of this Agreement to grant ABBOTT
the right to make, use, or sell Antigens or Antibodies.
1.2 "Abbott Collaborator Unpatented Technology" means unpatented
inventions, discoveries, trade secrets, information, experience, data, formulas,
procedures and results, and
<PAGE>
-4-
improvements used directly in connection with the development, manufacture, or
use of Antigens or Antibodies and owned or controlled by an Abbott Collaborator
during the first seventeen (17) years after the effective date of this Agreement
and licensed to ABBOTT with the right to sublicense.
1.3 "Abbott Know-How" means all inventions, discoveries, trade secrets,
information, experience, data, formulas, procedures and results, and
improvements, including all patents and patent applications, owned by ABBOTT
during the first seventeen (17) years after the effective date of this
Agreement, and all patents owned or controlled by an Abbott Collaborator during
the first seventeen (17) years after the effective date of this Agreement and
licensed to ABBOTT, with the right to sublicense, and used directly in
connection with the development, manufacture, or use of Antigens or Antibodies.
For the avoidance of doubt, Abbott Know-How does not include preclinical or
clinical data, assay formats or methods of labeling an Antigen or Antibody with
a detectable marker.
1.4 "Abbott Patent Right" means that portion of Abbott Know-How which : 1)
is a Valid Claim defining an Antigen or Antibody; and 2) is licensed to ABBOTT
by an Abbott Collaborator or assigned to ABBOTT; provided, however, that no
<PAGE>
-5-
Valid Claim shall be deemed to be an Abbott Patent Right *
1.5 "Abbott Selling Price", with respect to a Calendar Quarter, means the
total revenue in U.S. dollars, determined by an independent auditor, chosen in
accordance with Article V, at ABBOTT's expense, invoiced to End Users for the
Affected Product in the Affected Market during the previous two (2) consecutive
Calendar Quarters, divided by the number of Units of Product of such Affected
Product invoiced to such End Users in the Affected Market during such previous
two (2) consecutive Calendar Quarters.
1.6 "Acceptance Criteria" means certain physical and/or biological
characteristics of a Raw Material.
1.7 "Act" means the Federal Food, Drug and Cosmetic Act, as amended, and
regulations promulgated thereunder.
1.8 "Affected Market", with respect to Paragraph 5.2 of this Agreement
means Donor Centers in the Affected Territory, and with respect to Paragraph 5.3
of this Agreement means Plasma Centers in the Affected Territory.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-6-
1.9 "Affected Product" has the meaning given to it in Paragraphs 5.2 and
5.3 of this Agreement.
1.10 "Affected Territory" has the meaning given to it in Paragraphs 5.2 and
5.3 of this Agreement.
1.11 "Affiliate", with respect to a party hereto, means any company owned
or controlled by the party or a company owned or controlling the party or a
company in common ownership or control with the party. Any entity controlled
equally by ODS and CHIRON shall be deemed to be an Affiliate of each of them.
1.12 "Aggregate Non-HCV Price Change", with respect to a Calendar Quarter,
means the aggregate sum of the Non-HCV Price Change of each Non-HCV Screening
Test made by or for ABBOTT and sold to End Users in the Affected Market;
provided, however, that in no event shall the Aggregate Non-HCV Price Change be
less than zero.
1.13 "Antibody" means any antibody, or fragment thereof, or other
anti-ligand immunologically reactive with HCV or a portion of HCV and which is
used to diagnose or screen for hepatitis. The term Antibody shall not include
those specific markers contained in the assays currently marketed by ABBOTT or
being developed by ABBOTT and listed on Exhibit 1.13, attached hereto and
incorporated herein.
<PAGE>
-7-
1.14 "Antigen" means any peptide, polypeptide or ligand which reacts
immunologically with antibodies which are immunologically reactive with HCV or a
portion of HCV and which is used to diagnose or screen for hepatitis. The term
Antigen shall not include those specific markers contained in the assays
currently marketed by ABBOTT or being developed by ABBOTT and listed on Exhibit
1.13, attached hereto and incorporated herein.
1.15 "Base Cost" means the average Manufacturing Costs over the fourth year
of this Agreement for each Raw Material which was utilized to manufacture
Primary Product in the last Calendar Quarter of such fourth year.
1.16 "Base Price" means U.S.*
1.17 "Calendar Quarter" means, with respect to Territory I, a three (3)
month period beginning on January 1, April 1, July 1, or October 1, and with
respect to Territories II-VII the periods from December 1 to February 25,
February 26 to May 25, May 26 to August 25 and August 26 to November 30;
provided, however, that if February 25, May 25 or August 25 is a Saturday,
Sunday or legal holiday in the respective Territory, the end of such period
shall be the last workday preceding the 25th of such month.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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1.18 "Calendar Year" means a full year beginning on January 1.
1.19 "Challenge Cost" for each Raw Material means a) for the first two (2)
years after a challenge, the challenging party's Manufacturing Costs for such
Raw Material as determined by a current good faith estimate of the challenging
party pursuant to Paragraph 3.30; provided, however, that such good faith
estimate must be based on a level of production experience agreed upon by the
parties but in no event shall more than three (3) full scale GMP production runs
of such Raw Material be required and b) after such two (2) year period, the
Manufacturing Party's Current Cost for such Raw Material.
1.20 "Combination Product" means each Product which contains more than one
(1) distinct type of Antigen or Antibody.
1.21 "Comparison Price", with respect to each Affected Product during a
Calendar Quarter, shall mean the sum of (A) the Aggregate Non-HCV Price Change
and (B) the greater of (i) the ABBOTT Selling Price or (ii) the Third Party
Competition Price for the Third Party Product; provided, however, that in no
event shall the Comparison Price exceed U.S. *
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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1.22 "Confirmatory Product", with respect to a Territory, means each
Product utilized by Donor Centers or Plasma Centers to confirm the results of an
assay performed using a Primary Product or a Screening Product. For the
avoidance of doubt, a Confirmatory Product is included within the phrase
Diagnostic Product.
1.23 "Current Cost" for each Raw Material in any Calendar Year means the
Manufacturing Party's Manufacturing Costs for such Raw Material averaged over
the immediately preceding Calendar Year; provided, however, that if the
Manufacturing Party has manufactured less than three (3) full scale GMP
production runs of such Raw Material, the Current Cost shall be estimated by the
Manufacturing Party in good faith.
1.24 "Diagnostic Product", with respect to a Territory, means each Product
which is not a Primary Product or a Screening Product.
1.25 "Donor Center" means any entity or organization whose primary business
purpose is to provide whole human blood or components thereof for administration
to humans. If a Donor Center has its screening performed by a third party, the
term Donor Center shall include such third party with respect to such screening
activities.
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1.26 "End User" means a person or entity whose use of a Product results in
the Product's consumption, destruction, or loss of activity.
1.27 "FDA" means the United States Food and Drug Administration or any
successor entity thereto.
1.28 "Field" means all immunoassay formats other than: a) enzyme
immunoassays performed on a microtitre format (i.e., a solid support having
multiple wells to which immunologically reactive components are immobilized);
and b) radioimmunoassays.
1.29 "Hepatitis C virus" or "HCV", which may be used interchangeably
throughout this Agreement, means any viral isolate, other than isolates within
the viral classes Hepatitis A, Hepatitis B (including Hepatitis B-2) and
Hepatitis delta, including any subtypes of such classes, that:
(a) is included in the viral class established by the International
Committee on the Taxonomy of Viruses, or any body that replaces the
Committee, and termed Hepatitis C (or other name selected by the
Committee), including any subtype of such class, wherein the class
includes an isolate having genomic sequences, cDNA transcripts of
which are disclosed in an "Existing Chiron HCV Patent Application",
which means:
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(i) United States patent application serial no. 122,714 filed 18
November 1987 (hereinafter "USSN 122,714"); or
(ii) a United States patent application filed on or before the
effective date of this Agreement that claims the benefit of
the filing date of USSN 122,714 under Title 35, section 120,
of the United States Code; or
(iii) a non-United States patent application that claims priority
under the Paris Convention from a United States patent
application identified in (i) or (ii) above; or *
(b) (i) is at least * homologous at the amino acid level to an isolate
having genomic sequences that are disclosed in an Existing
Chiron HCV Patent Application determined by a comparison of
the corresponding protein sequences encoded by the entire
available genomes of the isolates with the software available
on the Dayhoff protein data base, or if the Dayhoff data base
is not available, any scientifically recognized protein
sequence data base in the public domain; and
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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(ii) has a genome that contains at least * non-overlapping
sequences of * nucleotides wherein each such non-overlapping
sequence either hybridizes to, or is at least * identical to,
a corresponding sequence of * * nucleotides, or its
complement, which are disclosed in an Existing Chiron HCV
Patent Application; and
(iii) has a genome of the same nucleic acid type (i.e., RNA or DNA)
as an isolate having genomic sequences, cDNA transcripts of
which are disclosed in an Existing Chiron HCV Patent
Application; and
(iv) has an organization of coding domains in its genome similar to
an isolate having genomic sequences, cDNA transcripts of which
are disclosed in an Existing Chiron HCV Patent Application; or
(c) any defective form of an isolate defined by (a) or (b), wherein
"defective" means a deletion of a portion of the genome including
deletions leading to replication defects.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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This definition is independent of the definition of HCV in any CHIRON patent
application.
1.30 "Know-How" means all inventions, discoveries, trade secrets,
information, experience, data, formulas, procedures and results, and
improvements, including all patents and patent applications, owned or controlled
by CHIRON during the first seventeen (17) years after the effective date of this
Agreement and licensed to ODS, or owned or controlled by ODS or licensed to ODS,
under an agreement entered into with a third party other than pursuant to
Paragraph 2.9, with the right to sublicense, during the first seventeen (17)
years after the effective date of this Agreement and used directly in connection
with the development, manufacture, or use of Antigens or Antibodies. For the
avoidance of doubt, Know-How does not include preclinical or clinical data,
assay formats, or methods of labeling an Antigen or Antibody with a detectable
marker.
1.31 "Manufacturing Costs" means the fully burdened costs to the
Manufacturing Party for producing a Raw Material, expressed as U.S.
dollars/nanogram ($/ng), including all fairly allocable direct (including
standard costs, other manufacturing costs and variances from standard costs) and
indirect (including general and administrative costs associated with
<PAGE>
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manufacturing, factory overhead, quality assurance, engineering and
production administration) costs thereof, determined by the Manufacturing
Party in a manner consistent with that which it uses in the ordinary course
of its business for internal accounting purposes.
1.32 "Manufacturing Party" means whichever of ODS, CHIRON, or ABBOTT is
manufacturing a given Raw Material.
1.33 "Net Purchase Price" means the Purchase Price for a Product less any
payment due: a) an Abbott Collaborator which is deducted from the Purchase
Price; or b) a third party pursuant to an agreement entered into in accordance
with Paragraph 2.9 and paid by ODS.
1.34 "Non-HCV Price Change", with respect to a Calendar Quarter, means the
U.S. dollar amount of any increase or decrease between the previous two (2)
consecutive Calendar Quarters in the average price, determined by an independent
auditor, chosen in accordance with Article V, at ABBOTT's expense, of a Unit of
Non-HCV Screening Test made by or for ABBOTT and invoiced to End Users in the
Affected Market. For the purposes of this Paragraph, the average price of a Unit
of Non-HCV Screening Test shall be calculated by dividing the total revenue, in
U.S. dollars, invoiced to End Users in the Affected Market for the Non-HCV
Screening Test made by or for
<PAGE>
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ABBOTT by the number of Units of the Non-HCV Screening Test invoiced to such End
Users in the Affected Market. There shall not be deemed to be any Non-HCV Price
Change for any Non-HCV Screening Test during the first two (2) Calendar Quarters
in which ABBOTT first sells such Non-HCV Screening Test in the Affected Market.
1.35 "Non-HCV Screening Test" means any test kit, other than a Product or
an HCV probe assay licensed from CHIRON, for screening human body fluids or
components thereof to determine if such body fluids or components thereof are
suitable for administration to humans.
1.36 "Patent Protected", with respect to any Product in a specific country,
means that the manufacture, use, or sale of such Product in such country
infringes a Valid Claim in such country.
1.37 "Patent Right" means that portion of Know-How which comprises patents
and all reissues, reexaminations and extensions thereof.
1.38 "Plasma Center" means any entity or organization whose primary
business purpose is to provide human plasma and/or plasma derivatives or body
fluids other than whole human blood. If a Plasma Center has its screening
performed by a third party, the term Plasma Center shall include such third
party with respect to such screening activities.
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1.39 "Price Differential" means two thirds of the difference between (A)
the Base Price and (B) the Comparison Price.
1.40 "Primary Product", with respect to a Territory, means all Products
included within the Product Category that has the highest volume of Units of
Product Shipped in such Territory.
1.41 "Priority Date" means the filing date of the U.S. patent application
with the earliest filing date, the benefit of which a Valid Claim is entitled
under 35 U.S.C. Paragraph 120.
1.42 "Product" means each immunoassay, immunoassay kit or immunoassay test
configuration, the manufacture, use or sale of which utilizes or contains one or
more Antigens or Antibodies.
1.43 "Product Category" means that grouping of Products which utilize or
contain the same number and immunologically distinct types of Antigens or
Antibodies, excluding Confirmatory Products.
1.44 "Product Requirement" means the estimated quantities agreed upon by
the parties of Raw Materials expected reasonably to be required in an efficient
commercial manufacturing and finishing process to produce each Unit of Product
in its final optimized formulation expressed as nanograms/Unit of Product.
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1.45 "Purchase Price" means the amount of money, calculated pursuant to
Paragraphs 3.2-3.22 below, payable by ABBOTT to ODS for each Unit of Product
Shipped.
1.46 "Purchase Price Material" means the amount of the Raw Material
utilized to manufacture a Unit of Product, expressed as nanograms per Unit of
Product (ng/unit of Product), for which ABBOTT is not obligated to pay ODS *
* of CHIRON's or ODS's Manufacturing Costs in accordance with Paragraph 3.25.
1.47 "Raw Material" means a composition of matter which contains one (1)
distinct type of Antigen or Antibody.
1.48 "Receiving Party" means whichever of ODS or ABBOTT is being supplied
with a given Raw Material.
1.49 "Release Specifications" means certain physical characteristics of a
Raw Material.
1.50 "Safety Stock Inventory" means an inventory of Raw Material maintained
by a Manufacturing Party in accordance with Paragraph 4.5.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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1.51 "Screening Product", with respect to a Territory, means each
Product Shipped to a Donor Center or a Plasma Center in such Territory which is
not a Primary Product or a Confirmatory Product.
1.52 "Ship", "Shipped" or "Shipment" means the delivery of any Unit of
Product or Unit of Non-HCV Screening Test by ABBOTT or its Affiliates to a third
party for any purpose other than for preclinical or clinical trials, except any
Unit of Product for which said third party receives an actual credit for goods
damaged during transit, warranty replacement (excluding expired goods) and
product recalls or any Unit of Product delivered to End Users pursuant to
Paragraphs 2.5. or 2.6. For the purposes of this definition, if ABBOTT or any of
its Affiliates uses a Unit of Product to test a body fluid for a third party,
either for a fee or as a service to a customer for which compensation is
received, directly or indirectly, such Unit of Product shall be deemed Shipped.
1.53 "Territory" means each of the following:
I. the United States, its territories and possessions
II. Canada
III. the Federal Republic of Germany
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IV. Italy
V. France
VI. Japan
VII. all countries not accounted for in I-VI above.
1.54 "Third Party Competition Price", with respect to a Calendar
Quarter, means the generally prevailing price, determined by an independent
auditor, chosen in accordance with Article V, at ABBOTT's expense, employing
actual sales data and/or demonstrably bona fide quotes to End Users in the
Affected Market for a Third Party Product during the previous two (2) Calendar
Quarters.
1.55 "Third Party Patent Right" means a Valid Claim defining an Antigen
or Antibody, and which is owned by or assigned to a third party and is licensed
to ABBOTT and ODS under an agreement entered into pursuant to Paragraph 2.9
below; provided, however, that no Valid Claim shall be deemed to be a Third
Party Patent Right * *
1.56 "Third Party Product" has the meaning given to it in Paragraphs 5.2
and 5.3 of this Agreement.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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1.57 "Unit" means each of the number of assays that a Product, Third
Party Product, or Non-HCV Screening Test is capable of performing as specified
in the labeling for such Product, Third Party Product or Non-HCV Screening Test.
For the avoidance of doubt, a Product, Third Party Product, or Non-HCV Screening
Test labeled as being capable of performing one hundred (100) assays shall
represent one hundred (100) Units of such Product, Third Party Product, or
Non-HCV Screening Test.
1.58 "Valid Claim" means any claim of an issued and unexpired patent
which neither has been held unenforceable, unpatentable or invalid by a decision
of a court or governmental agency of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal, nor has been admitted by the
holder of the patent to be invalid or unenforceable through reissue, disclaimer
or otherwise.
1.59 Within this Agreement, the terms "immunoassay", "immunologically"
and the like refer to both antigen/immunoglobulin binding and other
ligand/anti-ligand binding phenomena, excluding nucleic acid hybridization.
<PAGE>
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II. GRANT OF RIGHTS
2.1 Subject to the terms and conditions of this Agreement, ODS
grants to ABBOTT and its Affiliates a non-exclusive worldwide license,
without the right to sublicense others, under Know-How:
(a) to make, have made, use and sell Products only within the Field;
(b) to make, but not have made, and use Antigens and Antibodies for
research purposes only limited to the development of Products
within the Field and for regulatory purposes as provided for
herein; and
(c) in the event ABBOTT obtains manufacturing rights for an Antigen
or Antibody pursuant to Article IV hereof, to make, but not
have made, such Antigen or Antibody.
2.2
(a) Any license granted to a third party by ODS to make, use and
sell Product shall license such third party to deliver Product
to other third parties for purposes other than preclinical and
clinical trials in
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accordance with Exhibit 2.2, attached hereto and incorporated
herein, only after the expiry of * * from the effective date
of this Agreement, unless ABBOTT Ships less than * Units of
Product worldwide during the first * month period following
the earlier date of:
(i) ABBOTT's being granted a product license for any Product
from the FDA; or
(ii) * or unless ABBOTT Ships less than * Units of Product
worldwide during the second * * month period following
the earlier of (a) or (b) above. If at the end of each
such * month period ABBOTT has failed to Ship at least the
respective quantities of Units of Product above, then ODS
may grant any third party the right to sell Product at any
time thereafter.
(b) Within the first * after the effective date of this Agreement,
ODS will not market Products through a distributor of the kind
that is primarily engaged in the development and/or manufacture
and sale of diagnostic products, as exemplified by the current
activities of
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
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*
2.3 Subject to the terms and conditions of this Agreement, ABBOTT
hereby grants to ODS, CHIRON and their respective Affiliates a worldwide,
non-exclusive license, without the right to sublicense, under Abbott Know-How
to make, have made, use and sell Products, including the right to make and
have made Antigens and Antibodies. Such license shall be royalty-free for
Abbott Know-How owned by ABBOTT and royalty-bearing for Abbott Know-How owned
or controlled by an Abbott Collaborator, with the proviso that any such
royalty which ODS, CHIRON and their respective Affiliates shall be obligated
to pay an Abbott Collaborator shall not exceed the royalty which ABBOTT shall
be obligated to pay the Abbott Collaborator under its license agreement with
the Abbott Collaborator.
2.4 ABBOTT's license to Ship Product in Europe is effective
beginning July 1, 1990. ABBOTT's license to Ship Product outside Europe is
effective beginning either upon the date of ABBOTT's being granted a product
license from the FDA for any Product or upon January 1, 1990, whichever
happens first.
* = Confidential portions of material have been omitted and file separately with
the Securities and Exchange Commission.
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2.5 For the sole purposes of testing, demonstrating or evaluating
non-Diagnostic Products, i.e., Products which are not Diagnostic Products,
ABBOTT may deliver up to * * Units of each non-Diagnostic Product to End
Users without such Units being considered Shipped according to the following:
* in the first year after ABBOTT's first Shipment of such non-
Diagnostic Product;
* in the second year after ABBOTT's first Shipment of
such non-Diagnostic Product;
* in the third year after ABBOTT's first Shipment of such non-
Diagnostic Product;
provided, however, that: a) no more than fifty percent (50%) of such delivered
Units of non-Diagnostic Product in any year shall be delivered to End Users in
any single Territory; and b) no such non-Diagnostic Product may be delivered to
End Users in Europe prior to July 1, 1990 or to End Users outside Europe prior
to either ABBOTT's being granted a product license from the FDA for any Product
or upon January 1, 1990, whichever happens first; and c) such delivered Units of
non-Diagnostic Product are delivered to such End Users free of charge. For the
purposes of this Paragraph 2.5, a non-Diagnostic Product will be construed to be
distinct from another non-Diagnostic
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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Product and hence trigger the availability of another * * Units under this
Paragraph if the Antigen or Antibody employed in such non-Diagnostic Product is
immunologically distinct from the Antigen or Antibody employed in such another
non-Diagnostic Product.
2.6
(a) For the sole purposes of testing, demonstrating or evaluating
Confirmatory Products, ABBOTT may deliver up to * Units of
each Confirmatory Product to End Users without such Units being
considered Shipped provided that such Units of Confirmatory
Product are delivered to such End Users free of charge.
(b) For the sole purposes of testing, demonstrating or evaluating
Diagnostic Products, excluding Confirmatory Products, ABBOTT may
deliver up to * * Units of each Diagnostic Product to End Users
without such Units being considered Shipped according to the
following:
* in the first year after ABBOTT's first Shipment of such
Diagnostic product;
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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* in the second year after ABBOTT's first Shipment of such
Diagnostic product;
* in the third year after ABBOTT's first Shipment of such
Diagnostic product;
provided, however, that: i) no more than fifty percent (50%) of
such delivered Units of Diagnostic Product in any year shall be
delivered to End Users in any single Territory; ii) no such
Diagnostic Product may be delivered to End Users in Europe prior to
July 1, 1990 or to End Users outside Europe prior to either
ABBOTT's being granted a product license from the FDA for any
Product or upon January 1, 1990, whichever happens first; and iii)
such delivered Units of Diagnostic Product are delivered to such
End Users free of charge.
(c) For the purposes of this Paragraph 2.6, a Confirmatory Product or
Diagnostic Product will be construed to be distinct from another
Confirmatory Product or Diagnostic Product and hence trigger the
availability of another * or *
* Units under this Paragraph if the Antigen or Antibody employed
in such Diagnostic Product is immunologically distinct from the
Antigen or Antibody employed in such another Confirmatory Product
or Diagnostic Product.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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2.7 ABBOTT's license to deliver Product containing CHIRON's Antigen
designated C100-3 in European patent application publication no. 0 318 216 for
clinical trials is effective immediately and is limited to the number of Units
of Product as stated in Exhibit 2.2.
2.8
(a) If at any time during the term hereof:
(i) ODS grants to a third party a license or any immunity from
suit under Know-How allowing such third party to make, use
or sell Product, by way of a direct license or settlement of
litigation or a compulsory license or any other license
grant; or
(ii) a third party obtains an express or implied license under
Know-How, to make, use or sell Product, by the purchase of a
Raw Material not incorporated into a finished Product at the
time of such purchase, and such third party is not subject
to a contractual obligation with CHIRON not to make, use or
sell Product;
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then ODS or CHIRON will notify ABBOTT and provide ABBOTT with
a summary of the terms of any such license or immunity from
suit. If ABBOTT deems the effect of any such license or
immunity from suit, when all the terms and conditions thereof
are taken together, to be financially more favorable than
those available to ABBOTT under this Agreement, ABBOTT may
elect, by written notice to ODS, to amend this Agreement, if
such implied license is not terminated or otherwise
substantially abated or proceedings initiated and diligently
pursued to cause such termination or abatement within ninety
(90) days of receipt by ODS or CHIRON of such written notice
from ABBOTT of ABBOTT's intent to amend this Agreement, to
give effect to all such terms and conditions so that the
terms of such agreement taken together are not substantially
more or less favorable than the terms of this Agreement as so
amended. In any proceedings initiated by CHIRON to abate any
such implied license, CHIRON shall use reasonable efforts to
recover any damages incurred by ABBOTT in connection with
such implied license, and shall, upon receipt of any such
recovery, pay to ABBOTT the amount, if any, by which such
recovery exceeds that portion of CHIRON's reasonable costs
and expenses (including reasonable attorney's fees)
<PAGE>
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incurred in connection with such proceeding which is fairly
allocable to such recovery. Any amendment of this Agreement
pursuant to this Paragraph 2.8 (a) shall terminate, and this
Agreement shall be further amended to read in full as if such
amendment had not been made, if and when any such express or
implied license is terminated or otherwise abated.
(b) It is the intention of the parties that ABBOTT receive most
favored licensee status and treatment under this Agreement.
The parties recognize that commercial arrangements other than
a license may be to the advantage of ODS, such as
distributorship appointments. Accordingly, nothing herein
shall preclude ODS from marketing Products in the normal
course of business through distributors except as provided in
Paragraph 2.2(b) above; provided, however, that if ODS
appoints a distributor of the kind that is primarily engaged
in the development and/or manufacture and sale of diagnostic
products, ODS will notify ABBOTT and provide ABBOTT with a
summary of the terms of any such appointment. If ABBOTT deems
the effect of any such appointment, when all the terms and
conditions thereof are taken together, to be financially more
favorable than those available to
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ABBOTT under this Agreement, ABBOTT may elect, by written
notice to ODS, to amend this Agreement to give effect to all
such terms and conditions so that the terms of such agreement
taken together are not substantially more or less favorable
than the terms of this Agreement as so amended.
For the avoidance of doubt, the kind of distributor giving rise to the most
favored licensee status and treatment provisions of this Paragraph 2.8 are
exemplified by the current activities of *
The kind of distributors not giving rise to such most favored licensee status
are exemplified by the current activities of *
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
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2.9 If either ODS or ABBOTT identifies an HCV technology owned or
controlled by a third party, such party shall disclose its knowledge of the
existence of such HCV technology to the other. If ODS decides to seek a license
from the third party to the HCV technology, ODS shall negotiate with such third
party in an attempt to obtain such a license, which license shall extend to the
benefit of ABBOTT at the same terms and conditions if so requested by ABBOTT.
In the event ODS decides not to seek such a license or is unsuccessful in
obtaining such a license, only then shall ABBOTT be entitled to attempt to seek
such a license for itself and, if ODS so requests, for the benefit of ODS at the
same terms and conditions. ODS or ABBOTT shall, if requested by the other party,
use all reasonable efforts to obtain such rights for the other parties. In no
event shall any party obtain rights for the other parties under terms and
conditions different from those terms obtained for itself unless expressly
agreed to by the parties.
III. PAYMENTS
3.1 The Purchase Price for each Unit of Product shall be calculated in
accordance with the following paragraphs.
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3.2
(a) Except as set forth in this Agreement and except as modified by
Articles V and VI of this Agreement, the Purchase Price, with
respect to all Primary Products Shipped during each Calendar
Quarter, shall be as follows:
(i) U.S. * for each of the first * million Units of Product
of all Primary Products Shipped per Calendar Year;
(ii) U.S. * for each of the next * million Units of Product
of all Primary Products Shipped per Calendar Year; and
(iii) U.S. * for each Unit of Product in excess of the first *
million Units of Product of all Primary Products Shipped per
Calendar Year.
3.3 Except as set forth in Paragraph 3.5, if the Primary Product is
Patent Protected by a Patent Right and is also Patent Protected by an ABBOTT
Patent Right, the Purchase Price shall continue to be calculated pursuant to
Paragraph 3.2 of this Agreement.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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3.4 Except as set forth in Paragraph 3.5, the Purchase Price for a
Primary Product that is Patent Protected by a Patent Right and is also Patent
Protected by a Third Party Patent Right shall be the higher of either (i) the
Purchase Price calculated pursuant to Paragraph 3.2, or (ii) any payment due
under an agreement, entered into pursuant to Paragraph 2.9 above, licensing such
Third Party Patent Right. ABBOTT shall pay the Purchase Price determined
according to this Paragraph 3.4 to ODS and ODS shall make any payments required
under the agreement licensing such Third Party Patent Right.
3.5 The Purchase Price for a Primary Product that is Patent Protected
by a Patent Right, an ABBOTT Patent Right and a Third Party Patent Right shall
be the higher of either (i) the Purchase Price calculated pursuant to Paragraph
3.2, or (ii) any payment due under an agreement, entered into pursuant to
Paragraph 2.9 above, licensing such Third Party Patent Right. ABBOTT shall pay
the Purchase Price determined according to this Paragraph 3.5 to ODS and ODS
shall make any payments required under the agreement licensing such Third Party
Patent Right.
3.6 Except as set forth in Paragraph 3.8, if the Primary Product is not
Patent Protected by a Patent Right and is Patent Protected by an ABBOTT Patent
Right, the Purchase Price shall
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continue to be calculated pursuant to Paragraph 3.2 of this Agreement except
that ABBOTT shall be entitled to deduct therefrom any payments, with respect to
the Shipment of the Unit of Product, that ABBOTT shall be required to make to
any Abbott Collaborator under an agreement licensing such ABBOTT Patent Right up
to the full amount of the Purchase Price for such Primary Product.
3.7 Except as set forth in Paragraph 3.8, the Purchase Price for a
Primary Product that is not Patent Protected by a Patent Right and is Patent
Protected by a Third Party Patent Right shall be the higher of either (i) the
Purchase Price calculated pursuant to Paragraph 3.2, or (ii) any payment due
under an agreement, entered into pursuant to Paragraph 2.9 above, licensing such
Third Party Patent Right. ABBOTT shall pay the Purchase Price determined
according to this Paragraph 3.7 to ODS and ODS shall make any payments required
under the agreement licensing such Third Party Patent Right.
3.8 The Purchase Price for a Primary Product that is not Patent
Protected by a Patent Right and is Patent Protected by an ABBOTT Patent Right
and a Third Party Patent Right shall be the higher of either (i) the Purchase
Price calculated pursuant to Paragraph 3.2, or (ii) the sum of any payment due
under an agreement, entered into pursuant to Paragraph 2.9 above,
<PAGE>
-35-
licensing such Third Party Patent Right and any payment, with respect to the
Shipment of the Unit of Product, that ABBOTT shall be required to make to an
Abbott Collaborator under an agreement licensing such ABBOTT Patent Right;
provided, however that ABBOTT shall be entitled to deduct from such Purchase
Price determined according to (i) or (ii) above any payments, with respect to
the Shipment of the Unit of Product, that ABBOTT shall be required to make to
any Abbott Collaborator under an agreement licensing such ABBOTT Patent Right.
ABBOTT shall pay the Purchase Price determined according to this Paragraph 3.8
to ODS and ODS shall make any payment required under the agreement licensing
such Third Party Patent Right.
3.9 Except as set forth in this Agreement and except as modified by
Articles V and VI of this Agreement, the Purchase Price, with respect to each
Screening Products Shipped to a given Territory during each Calendar Quarter,
shall be negotiated by the parties in good faith but in any event shall not be
less than U.S. * or more than U.S. * per Unit of Product. In the event that
the parties are unable to agree upon a mutually acceptable Purchase Price, the
Purchase Price for such Screening Product shall be U.S. * The Purchase Price
for Screening Products under this Paragraph 3.9 is not subject to the provisions
of Article XVIII.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-36-
3.10 Except as set forth in Paragraph 3.12, if the Screening Product is
Patent Protected by a Patent Right and is also Patent Protected by an ABBOTT
Patent Right, the Purchase Price shall be as follows:
(i) U.S. * for each of the first * million Units of Product
of all Screening Products Patent Protected by both a Patent
Right and an ABBOTT Patent Right and Shipped per Calendar
Year;
(ii) U.S. * for each of the next * million Units of Product
of all Screening Products Patent Protected by both a Patent
Right and an ABBOTT Patent Right and Shipped per Calendar
Year; and
(iii) U.S. * for each Unit of Product in excess of the first
* million Units of Product of all Screening Products Patent
Protected by both a Patent Right and an ABBOTT Patent Right
and Shipped per Calendar Year.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-37-
3.11 Except as set forth in Paragraph 3.12, the Purchase Price for a
Screening Product that is Patent Protected by a Patent Right and is also Patent
Protected by a Third Party Patent Right shall be the higher of either (i) the
Purchase Price calculated pursuant to Paragraph 3.9, or (ii) any payment due
under an agreement, entered into pursuant to Paragraph 2.9 above, licensing such
Third Party Patent Right. ABBOTT shall pay the Purchase Price determined
according to this Paragraph 3.11 to ODS and ODS shall make any payments required
under the agreement licensing such Third Party Patent Right.
3.12 The Purchase Price for a Screening Product that is Patent Protected
by a Patent Right, an ABBOTT Patent Right and a Third Party Patent Right shall
be the higher of either (i) the Purchase Price calculated pursuant to Paragraph
3.10, or (ii) any payment due under an agreement, entered into pursuant to
Paragraph 2.9 above, licensing such Third Party Patent Right. ABBOTT shall pay
the Purchase Price determined according to this Paragraph 3.12 to ODS and ODS
shall make any payments required under the agreement licensing such Third Party
Patent Right.
3.13 Except as set forth in Paragraph 3.15, if the Screening Product is
not Patent Protected by a Patent Right and is Patent Protected by an ABBOTT
Patent Right, the Purchase Price shall be determined as follows:
<PAGE>
-38-
(a) U.S. * per Unit of Product Shipped during the first five (5)
years from the date of this Agreement; and
(b) U.S. * for each Unit of Product Shipped during the remaining term
of this Agreement.
3.14 Except as set forth in Paragraph 3.15, if the Screening Product is
not Patent Protected by a Patent Right and is Patent Protected by a Third Party
Patent Right, ABBOTT shall be responsible for all payments due under an
agreement, entered into pursuant to Paragraph 2.9 above, licensing such Third
Party Patent Right by virtue of ABBOTT's exercising its rights under such
agreement. The Purchase Price for such Screening Product shall be U.S. *
3.15 If the Screening Product is not Patent Protected by a Patent Right
and is Patent Protected by an ABBOTT Patent Right and a Third Party Patent
Right, ABBOTT shall be responsible for all payments due under an agreement,
entered into pursuant to Paragraph 2.9 above, licensing such Third Party Patent
Right by virtue of ABBOTT's exercising its rights under such agreement. The
Purchase Price for such Screening Product shall be U.S. *
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-39-
3.16 Except as set forth in this Agreement and except as modified by
Articles V and VI of this Agreement, the Purchase Price, with respect to
Diagnostic Products Shipped in a given Territory during each Calendar Quarter,
shall be negotiated by the parties in good faith but in any event shall not be
less than U.S. * or more than U.S. * per Unit of Product. In the event the
parties are unable to agree upon a mutually acceptable Purchase Price, the
Purchase Price for such Diagnostic Product shall be U.S. * The Purchase Price
for Diagnostic Products under this Paragraph 3.16 is not subject to the
provisions of Article XVIII.
3.17 Except as set forth in Paragraph 3.19, if the Diagnostic Product is
Patent Protected by a Patent Right and is also Patent Protected by an ABBOTT
Patent Right, the Purchase Price shall be U.S. * per Unit of Product.
3.18 Except as set forth in Paragraph 3.19, the Purchase Price for a
Diagnostic Product that is Patent Protected by a Patent Right and is also Patent
Protected by a Third Party Patent Right shall be the higher of either (i) the
Purchase Price calculated pursuant to Paragraph 3.16, or (ii) any payment due
under an agreement, entered into pursuant to Paragraph 2.9 above, licensing such
Third Party Patent Right. ABBOTT shall pay the Purchase Price determined
according to
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-40-
this Paragraph 3.18 to ODS and ODS shall make any payments required under the
agreement licensing such Third Party Patent Right.
3.19 The Purchase Price for a Diagnostic Product that is Patent
Protected by a Patent Right, an ABBOTT Patent Right and a Third Party Patent
Right shall be the higher of either (i) the Purchase Price calculated Pursuant
to Paragraph 3.17, or (ii) any payment due under an agreement, entered into
pursuant to Paragraph 2.9 above, licensing such Third Party Patent Right. ABBOTT
shall pay the Purchase Price determined according to this Paragraph 3.19 to ODS
and ODS shall make any payments required under the agreement licensing such
Third Party Patent Right.
3.20 Except as set forth in Paragraph 3.22, if the Diagnostic Product is
not Patent Protected by a Patent Right and is Patent Protected by an ABBOTT
Patent Right, the Purchase Price shall be determined as follows:
(i) U.S. * per Unit of Product Shipped during the first five (5)
years after the date of this Agreement; and
(ii) U.S. * per Unit of Product Shipped during the remaining term of
this Agreement.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-41-
3.21 Except as set forth in Paragraph 3.22, if the Diagnostic Product is
not Patent Protected by a Patent Right and is Patent Protected by a Third Party
Patent Right, ABBOTT shall be solely responsible for all payments due under an
agreement, entered into pursuant to Paragraph 2.9 above, licensing such Third
Party Patent Right by virtue of ABBOTT's exercising its rights under such
agreement. The Purchase Price for such Diagnostic Product shall be U.S. *
3.22 If the Diagnostic Product is not Patent Protected by a Patent
Right and is Patent Protected by an ABBOTT Patent Right and a Third Party
Patent Right, ABBOTT shall be solely responsible for all payments due under
an agreement, entered into pursuant to Paragraph 2.9 above, licensing such
Third Party Patent Right by virtue of ABBOTT's exercising its rights under
such agreement. The Purchase Price for such Diagnostic Product shall be U.S. *
3.23 With respect to Territory VII, the Purchase Price for each Product
Shipped therein shall be calculated according to Paragraphs 3.2-3.22, with the
proviso that for the purposes of determining whether a Product is Patent
Protected by a Patent Right, an Abbott Patent Right or a Third Party Patent
Right, the Product will be deemed to have been made, used or sold in Territory
I.
<PAGE>
-42-
3.24 The Purchase Price for a Combination Product shall be calculated
according to Paragraphs 3.2-3.22 and ABBOTT shall pay ODS for Raw Materials
included in the Combination Product according to Paragraph 3.35.
3.25
(a) At the end of each Calendar Quarter, ABBOTT shall prepare a
reconciliation of the material balance for each Raw Material as
follows:
<PAGE>
<TABLE>
<CAPTION>
A B C D E F
<S> <C> <C> <C> <C> <C>
Prior Quarters + Raw Material = Raw Material** + Raw Material** + Raw Material** + Raw Material
balance forward delivered to incorporated in inventory otherwise obtained
of Raw Material ABBOTT into Product a) Raw Material used include- pursuant to
in inventory as Shipped in stock ing at least Paragraph
set forth in b) Products in research & 3.35 for
Column D in the process development, Combination
material balance c) finished quality Products
from the previous Products assurance
Calendar Quarter [(a),(b)&(c) and quality
to be indivi- control,
dually yield loss,
identified and wastage
and listed.]
</TABLE>
* All amounts of Raw Materials shall be stated in nanograms.
** Other than Raw Material obtained pursuant to Paragraph 3.35 for
Combination Products
<PAGE>
-44-
(b) At the end of each Calendar Quarter ABBOTT shall pay to ODS:
(i) the Purchase Price for each Unit of Product Shipped by
ABBOTT during such Calendar Quarter, modified if necessary
by Paragraph 3.34, 5.4 or 6.1; plus
(ii) * of CHIRON's or ODS's Manufacturing Cost for all Raw
Material in Column E of Paragraph 3.25(a) above; plus
(iii) * of CHIRON's or ODS's Manufacturing Cost for the
aggregate amount of C100-3 supplied by ODS or CHIRON that is
utilized by ABBOTT to manufacture Product during such
Calendar Quarter in excess of * * per Unit of Product; plus
(iv) * of CHIRON's or ODS's Manufacturing Cost for the
aggegate amount of each Raw Material other than C100-3
supplied by CHIRON or ODS that is utilized by ABBOTT to
manufacture Product during such Calendar Quarter in excess
of the lower of (a) the greater of *
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-45-
* per Unit of Product or ODS's Product Requirement, if
any, for a Product utilizing such Raw Material or (b)
ABBOTT's Product Requirement for the Product utilizing such
Raw Material; plus
(v) any incremental increase according to Paragraph 3.30; plus
(vi) * of CHIRON's or ODS's Manufacturing Cost for all Raw
Material included in Combination Products for which a
payment is due according to Paragraph 3.35.
From such payment, ABBOTT shall be entitled to deduct a credit for:
(i) any payments made by ABBOTT to CHIRON or ODS pursuant to
Paragraph 3.27 during such Calendar Quarter; plus
(ii) any incremental reduction according to Paragraphs 3.30,
3.32 and 3.33; plus
(iii) yield loss calculated as follows:
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-46-
Yield Loss Credit = ( * x total nanograms x ( * of CHIRON's
of each Raw or ODS's Manufac-
Material supplied turing Cost for
to ABBOTT by CHIRON such Raw Material)
or ODS during such
Calendar Quarter)
3.26 All payments to be made to ODS by ABBOTT under this Agreement shall
be made in United States Dollars within sixty (60) days after the end of each
Calendar Quarter.
3.27 Within thirty (30) days after delivery of Raw Material to ABBOTT by
CHIRON, ABBOTT shall advance to CHIRON * (U.S. * ) per milligram or, upon
CHIRON's written notice to ABBOTT, CHIRON's Manufacturing Cost plus *
percent (* %), for Raw Material so delivered. All monies paid pursuant to
this Paragraph 3.27 shall be creditable against all payments due ODS
hereunder.
3.28 ABBOTT shall keep accurate books and records of sales and Shipments
of Products and of all payments due ODS and/or CHIRON hereunder. After the
first Unit of Product is Shipped, ABBOTT shall deliver to ODS in accordance
with Article XVI written reports of sales and Shipments of Products
categorized according to Paragraphs 3.2-3.22 during the preceding Calendar
Quarter on or before the 60th day following the end of each Calendar Quarter.
Such report shall include all information required to calculate all monies
due, including but not limited
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-47-
to for each Territory, by individual Product: Purchase Price due, Units Shipped,
Units Shipped excluded from Purchase Price, adjustments to Units Shipped
(returns, etc.), credit for payments made under Paragraph 3.27, and a total
material balance for all Raw Materials received, by Raw Material according to
Section 3.25(a). Such report shall be accompanied by payment of all monies due
hereunder.
3.29
(a) With respect to a Raw Material, each Receiving Party shall have
the right, at its own expense, during each Calendar Quarter when
Manufacturing Costs are charged by the Manufacturing Party and
for three (3) years thereafter, to have an independent public
accountant, to whom the Manufacturing Party has no reasonable
objection, examine the relevant books and records of account of
the Manufacturing Party upon reasonable notice during reasonable
business hours and not more than once per Calendar Year, to
confirm that appropriate Manufacturing Costs have been charged by
the Manufacturing Party. Such independent public accountant shall
report to the Receiving Party only upon the correctness of the
calculations with respect to the Manufacturing Party's books and
records and
<PAGE>
-48-
shall not disclose the details of the records examined. The
Receiving Party shall provide a copy of such report to the
Manufacturing Party.
(b) ODS and CHIRON shall have the right, at their own expense, for
each Calendar Quarter during which Purchase Price payments are
due to ODS and for three (3) years thereafter, to have an
independent public accountant, to whom ABBOTT has no reasonable
objection, examine the relevant books and records of account of
ABBOTT upon reasonable notice during reasonable business hours
and not more than once during each Calendar Year, to confirm that
appropriate Purchase Price payments have been made by ABBOTT
hereunder or to confirm any other representation made by ABBOTT
which is pertinent to the rights of ODS or CHIRON hereunder. Such
independent public accountant shall report to ODS or CHIRON or
both, as the case may be, only upon the correctness of the
calculations with respect to ABBOTT's books and records and shall
not disclose the details of the records examined. ODS or CHIRON
shall provide a copy of such report to ABBOTT.
<PAGE>
-49-
(c) With respect to each Calendar Quarter and for three (3) years
thereafter, ABBOTT shall have the right, at its own expense, to
have an independent public accountant, to which neither ODS nor
CHIRON has a reasonable objection, examine the relevant books and
records of account of ODS and/or CHIRON upon reasonable notice
during reasonable business hours and not more than once during
each Calendar Year, to confirm any representation made by ODS
and/or CHIRON which is pertinent to the rights of ABBOTT
hereunder. Such independent public accountant shall report to
ABBOTT only upon the correctness of the calculations with respect
to ODS' and CHIRON's books and shall not disclose the details of
the records examined. ABBOTT shall provide a copy of such report
to ODS and CHIRON.
3.30
(a) CHIRON shall within sixty (60) days following the fourth
anniversary date of this Agreement, notify ABBOTT in writing of
the Base Cost. Within sixty (60) days following the fourth annual
anniversary date of this Agreement and every succeeding
anniversary date thereafter, each Manufacturing Party shall
notify the other parties in writing of the Current Cost for each
Raw Material manufactured by such Manufacturing Party.
<PAGE>
-50-
(b) If at any time ODS or CHIRON is the Manufacturing Party for a
given Raw Material and the Current Cost for such Raw Material
exceeds the Base Cost by at least * , ABBOTT shall pay to ODS, in
addition to the Calendar Quarter payments due in accordance with
Paragraph 3.28, (i) an increment for the Purchase Price Material
of each Product containing such Raw Material equal to the number
of Units of such Product Shipped in such Calendar Quarter
multiplied by the Purchase Price Material of such Product
further multiplied by * the difference between the Current Cost
and the Base Cost, plus (ii) a further increment for the Purchase
Price Material of such Product equal to the number of Units of
such Product Shipped in such Calendar Quarter multiplied by the
Purchase Price Material of such Product further multiplied by the
amount, if any, by which the sum of the Base Cost plus * the
difference between the Current Cost and the Base Cost exceeds *
* of the Net Purchase Price for such Product.
(c) If at any time ODS or CHIRON is the Manufacturing Party for a
given Raw Material and the Current Cost for such Raw Material is
less than the Base Cost by at least * , ABBOTT's Calendar Quarter
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-51-
payment due in accordance with Paragraph 3.28 shall be reduced by an
increment for the Purchase Price Material of each Product containing such
Raw Material equal to the number of Units of such Product Shipped in such
Calendar Quarter multiplied by the Purchase Price Material of such Product
further multiplied by * the difference between the Base Cost and the
Current Cost.
(d) (i) If at any time a party (the "Challenger") who is not the
Manufacturing Party for a given Raw Material wishes to
manufacture such Raw Material and the Challenge Cost for such
Raw Material is less than the Current Cost by at least * ,
the Challenger shall have the right to challenge the Current
Cost by notifying the Manufacturing Party of such Raw Material
in writing of the Challenge Cost within ninety (90) days after
notification by the Manufacturing Party of the Current Cost;
provided, however, that no cost challenge with respect to a
given Raw Material may occur until after the expiration of two
(2) years from the last cost challenge with respect to such
Raw Material. The Manufacturing Party may then
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-52-
elect, by written notice within thirty (30) days after such
notification of the Challenge Cost, either to continue to supply
such Raw Material or to permit the Challenger to manufacture
such Raw Material. If the Manufacturing Party elects to
discontinue manufacturing, the Challenger shall become the
Manufacturing Party for such Raw Material upon the later of
six (6) months after such election or upon the date the
Challenger receives an establishment license, if required, from
the FDA. If the Manufacturing Party elects to continue
manufacturing, the Manufacturing Party shall pay the
Challenger's Manufacturing Cost for the production runs that
were agreed upon by the parties to determine the Challenge
Cost. In the event of a bona fide cost challenge made in
accordance with this Paragraph 3.30(d)(i), the Calendar
Quarter payments due in accordance with Paragraph 3.28 shall
be adjusted as follows:
(A) If ODS or CHIRON elects to continue manufacturing such Raw
Material after a cost challenge by ABBOTT or becomes the
<PAGE>
-53-
Manufacturing Party for such Raw Material as the result of
a cost challenge and the Challenge Cost is greater than the
Base Cost, ABBOTT shall pay to ODS, in addition to the
Calendar Quarter payments due in accordance with Paragraph
3.28, (i) an increment for the Purchase Price Material of
each Product containing such Raw Material equal to the
number of Units of such Product Shipped in such Calendar
Quarter multiplied by the Purchase Price Material of such
Product further multiplied by * the difference between the
Challenge Cost and the Base Cost, plus (ii) a further
increment for the Purchase Price Material of such Product
equal to the number of Units of such Product Shipped in such
Calendar Quarter multiplied by the Purchase Price Material
of such Product further multiplied by the amount, if any, by
which the sum of the Base Cost plus * the difference
between the Challenge Cost and the Base Cost exceeds * of
the Net Purchase Price for such Product.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-54-
(B) If ODS or CHIRON elects to continue manufacturing such Raw
Material after a cost challenge by ABBOTT or becomes the
Manufacturing Party for such Raw Material as the result of a
cost challenge and the Challenge Cost is less than or equal
to the Base Cost, ABBOTT's Calendar Quarter payment due in
accordance with Paragraph 3.28 shall be reduced by an
increment for the Purchase Price Material of each Product
containing such Raw Material equal to the number of Units of
such Product Shipped in such Calendar Quarter multiplied by
the Purchase Price Material of such Product further
multiplied by * the difference between the Base Cost and
the Challenge Cost.
(C) If ABBOTT elects to continue manufacturing such Raw Material
after a cost challenge by ODS or CHIRON or becomes the
Manufacturing Party for such Raw Material as the result of
a cost challenge and the Challenge Cost is greater than the
Base Cost, ABBOTT's Calendar Quarter payment due in
accordance
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-55-
with Paragraph 3.28 shall be reduced by an increment for the
Purchase Price Material of each Product containing such Raw
Material equal to the number of Units of such Product
Shipped in such Calendar Quarter multiplied by the Purchase
Price Material of such Product further multiplied by the sum
of the Base Cost and * the difference between the
Challenge Cost and the Base Cost.
(D) If ABBOTT elects to continue manufacturing such Raw Material
after a cost challenge by ODS or CHIRON or becomes the
Manufacturing Party for such Raw Material as the result of a
cost challenge and the Challenge Cost is less than or equal
to the Base Cost, ABBOTT's Calendar Quarter payment due in
accordance with Paragraph 3.28 shall be reduced by an
increment for the Purchase Price Material of each Product
containing such Raw Material equal to the number of Units of
such Product Shipped in such Calendar Quarter multiplied by
the Purchase Price Material of such Product further
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-56-
multiplied by the sum of the Challenge Cost and * the
difference between the Base Cost and the Challenge Cost.
(e) In the event ABBOTT is required to pay an additional increment
pursuant to subparagraph (ii) of Paragraphs 3.30(b) or (d)(i)(A), or
in the event an incremental reduction under Paragraphs 3.30(c) or
(d)(i)(B) is limited to * ) of the Net Purchase Price under
Paragraph 3.36 below, ABBOTT shall have the right, upon notice to the
Manufacturing Party, to begin manufacturing the Raw Material contained
in the Product for which such additional sum is payable. If Abbott
elects to begin manufacturing pursuant to this subparagraph (e),
ABBOTT's Calendar Quarter payment due in respect of such Product in
accordance with Paragraph 3.28 shall be reduced by an increment equal
to the number of Units of such Product Shipped in such Calendar
Quarter multiplied by * the aggregate Net Purchase Price for such
Product.
3.31 In the event that ABBOTT becomes the Manufacturing Party as the
result of a cost challenge, ABBOTT shall be obligated to supply ODS and its
Affiliates with their
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-57-
requirements of Raw Materials at ABBOTT's Manufacturing Costs plus * the
excess, if any, of the Current Cost at the time of the cost challenge over
ABBOTT's Manufacturing Costs.
3.32 In the event that the Base Cost has not been established and ABBOTT is
the Manufacturing Party, ABBOTT's Calendar Quarter payment due in accordance
with Paragraph 3.28 shall be reduced by an increment equal to the number of
Units of Product containing such Raw Material Shipped in such Calendar Quarter
multiplied by the Purchase Price Material of such Product further multiplied by
ABBOTT's Manufacturing Cost.
3.33 If the Base Cost is established and ABBOTT becomes the Manufacturing
Party other than pursuant to Paragraph 3.30 or 3.35, ABBOTT's Calendar Quarter
payments due in accordance with Paragraph 3.28 shall be reduced as follows: (a)
if ABBOTT's Manufacturing Costs are greater than the Base Cost, ABBOTT's
Calendar Quarter payment due in accordance with Paragraph 3.28 shall be reduced
by an increment for the Purchase Price Material of each Product equal to the
number of Units of such Product Shipped in such Calendar Quarter multiplied by
the Purchase Price Material of such Product further multiplied by the sum of
the Base Cost plus * the difference between ABBOTT's Manufacturing Costs and
the Base Cost; and (b) if ABBOTT's Manufacturing Costs are less
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-58-
than the Base Cost, ABBOTT's Calendar Quarter payment due in accordance with
Paragraph 3.28 shall be reduced by an increment for the Purchase Price Material
of each Product equal to the number of Units of such Product Shipped in such
Calendar Quarter multiplied by the Purchase Price Material of such Product
further multiplied by the sum of ABBOTT's Manufacturing Costs plus * the
difference between the Base Cost and ABBOTT's Manufacturing Costs.
3.34 In the event that CHIRON or ODS supplies ABBOTT with a Raw Material
which ABBOTT utilizes in manufacturing a Product and the Net Purchase Price
is less than CHIRON's or ODS's Manufacturing Costs of the Raw Material, the
Purchase Price shall be increased by the difference between * * of
CHIRON's or ODS's Manufacturing Costs of the Raw Material and the Net
Purchase Price. Such increased Purchase Price shall not be subject to any
reduction pursuant to Article VI or any offset pursuant to Article V.
3.35 With respect to Combination Products, in addition to the Purchase
Price determined according to Paragraphs 3.2-3.22 above, ABBOTT shall pay to ODS
* of CHIRON's Manufacturing Costs for each Raw Material utilized in the
manufacture of or contained in the Combination Product except for one (1) such
Raw Material. Such one (1) Raw Material shall be determined by the following
criteria:
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-59-
(a) the Raw Material first utilized in a Product Shipped; or
(b) if such one (1) Raw Material cannot be determined, then the Raw
Material for which CHIRON's Manufacturing Costs is lowest.
In any event however, if ABBOTT's Manufacturing Costs are less than CHIRON's
Manufacturing Costs with respect to any Raw Material other than the one (1) Raw
Material, ABBOTT shall have the option of manufacturing such other Raw Material
and ABBOTT shall offer to provide ODS with such Raw Material at * of ABBOTT's
Manufacturing Costs.
3.36 Notwithstanding any provision to the contrary contained herein, in no
event shall the amount of any increment for Purchase Price Material pursuant to
Paragraphs 3.30(c), (d)(i)(B), (d)(i)(C), (d)(i)(D), (e), 3.32, or 3.33 reduce
the amount of money payable to ODS for Shipped Units of Product containing such
Purchase Price Material, as a component of ABBOTT's Calendar Quarter payment due
in accordance with Paragraph 3.28, to less than * of the aggregate Net
Purchase Price for such Units of Product.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-60-
IV. SUPPLY OF RAW MATERIALS
4.1
(a) During the term of this Agreement and in consideration for the payment
by ABBOTT of the total monies due as determined in accordance with the
provisions hereinafter, CHIRON agrees to supply ABBOTT with such
quantities of Antigen and Antibody as ABBOTT requires, subject to the
provisions of this Article IV, for the development and manufacture of
Product, and subject to the terms of Article III and this Article IV
and during the term of this Agreement, ABBOTT agrees to obtain solely
from CHIRON all Antigen and Antibody required by ABBOTT and its
Affiliates, directly or indirectly, for the manufacture of Product.
(b) Paragraph 4.1(a) notwithstanding, nothing herein shall preclude ABBOTT
from making Antigens or Antibodies in the European Economic Community
for manufacturing Products for resale in the European Economic
Community after * from the effective date of this Agreement.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-61-
(c) It is the general intent of the parties hereto that CHIRON in the
first instance shall be the Manufacturing Party of Raw Materials and
that CHIRON shall, pursuant to the provisions set forth hereunder, use
reasonable efforts to supply ABBOTT with its forecasted requirements
and firm purchase orders for such Raw Materials. As the Manufacturing
Party of a Raw Material, CHIRON shall be obliged to maintain a Safety
Stock Inventory of such Raw Material. In the event that CHIRON does
not agree to supply a Raw Material, ABBOTT may manufacture the Raw
Material for itself; provided, however, that ABBOTT shall have a
concomitant obligation to supply the same Raw Material to ODS if ODS
so desires.
4.2 For each Raw Material, CHIRON shall propose in writing reasonable
Release Specifications. Upon proposing such Release Specifications, CHIRON shall
be obligated to meet each Receiving Party's requirements of such Raw Material
subject to the provisions of this Article IV. Release Specifications for
CHIRON's Antigen designated C100-3 are listed on Exhibit 4.2 attached hereto and
incorporated herein.
<PAGE>
-62-
4.3
(a) With respect to the Release Specifications of each Raw Material which
ODS is able to demonstrate can be used to manufacture Product, ABBOTT
may propose modified Release Specifications for such Raw Material, in
which case CHIRON may either: i) at ABBOTT's expense, alter its
manufacturing processes to produce the Raw Material meeting the
proposed, modified Release Specifications; or ii) allow ABBOTT to
manufacture the Raw Material according to such proposed, modified
Release Specifications.
(b) With respect to the Release Specifications of each Raw Material which
ODS is not able to demonstrate can be used to manufacture Product,
ABBOTT may propose modified Release Specifications for such Raw
Material, provided ABBOTT certifies that such Raw Material
manufactured according to such proposed, modified Release
Specifications can be used to manufacture Product, in which case
CHIRON may either: i) alter its manufacturing processes to produce the
Raw Material meeting the proposed, modified Release Specifications; or
ii) allow ABBOTT to manufacture the Raw Material according to such
proposed, modified Release Specifications.
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(c) Once ABBOTT commences manufacturing a Raw Material, ODS shall have the
option of having ODS's requirements of the same Raw Material supplied
to it by ABBOTT meeting the same proposed, modified Release
Specifications and under supply, and delivery terms comparable to the
terms of this Article IV and terms comparable to Articles IX and XIII
below. ODS shall pay ABBOTT a supply price for any Raw Material
supplied by ABBOTT hereunder equal to ** of ABBOTT's Manufacturing
Costs for the amounts of Raw Material so supplied.
4.4 After delivery of a Raw Material by CHIRON, ABBOTT and CHIRON shall
negotiate in good faith and agree upon and establish in writing reasonable
Acceptance Criteria for the Raw Material based on actual testing of delivered
Raw Material. Until Acceptance Criteria are agreed upon, the Release
Specification shall be the Acceptance Criteria for the Raw Material.
4.5 Effective April 1, 1990 for CHIRON's Antigen designated C100-3, and
effective as of the date of first commercial sale of Product containing a Raw
Material other than C100-3, CHIRON warrants that, with respect to C100-3 and
such other Raw Materials for which it is the Manufacturing Party, it
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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will use reasonable efforts to maintain a Safety Stock Inventory which shall
contain at least ABBOTT's ordered and forecasted requirements for the following
* of each Raw Material being provided by CHIRON to ABBOTT hereunder. ODS and
ABBOTT each separately warrant that, with respect to a Raw Material for which it
is the Manufacturing Party, it will use reasonable efforts to maintain a Safety
Stock Inventory which shall contain at least the Receiving Party's ordered and
forecasted requirements for the following * of each Raw Material being
provided by ODS or ABBOTT as a Manufacturing Party hereunder.
4.6 Except as otherwise provided hereunder the parties shall, before
Shipping a Unit of Product, agree upon in writing the Product Requirement of
the Product. Such Product Requirement shall be initially estimated by the
parties and thereafter revised, if necessary, to reflect actual manufacturing
experience of the Product.
4.7 By September 1, 1989 ABBOTT shall provide ODS and CHIRON with:
(a) firm purchase orders for ABBOTT's requirements for each Raw Material
to be delivered in September, October and November 1989; and
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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(b) a forecast of ABBOTT requirements for each Raw Material to be
delivered in each of the next succeeding * .
On or before October 2, 1989, and the first work day of each month thereafter,
ABBOTT shall update its forecast by providing ODS and CHIRON with the following:
(c) an additional firm purchase order for the next month succeeding the
last month covered by a firm purchase order; provided, however, that
such additional purchase order for such month may not vary by plus or
minus ten percent (10%) from the amount forecasted for such month in
the last forecast; and
(d) a forecast of ABBOTT requirements for each Raw Material in each of the
next succeeding * * ; provided, however, that the forecast for the
first month shall not vary by plus or minus twenty percent (20%) from
the amount forecasted for that month in the last forecast and the
forecast for the second month shall not vary by plus or minus twenty-
five percent (25%) from the amount forecasted for that month in the
last forecast.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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CHIRON shall deliver to ABBOTT, from Safety Stock Inventory on a first
in/first out basis, all amounts of Raw Materials ordered by ABBOTT. ABBOTT
may from time to time, place an order for Raw Materials that is greater than
that permitted by the forecasting and firm purchase order limits set forth
above. In such event, CHIRON shall use its reasonable efforts to fulfill such
orders but shall not be so obligated and neither the failure to fill such
orders nor any reduction in Safety Stock Inventory caused by filling such
orders shall constitute a Delivery Default under Paragraph 4.9 on behalf of
CHIRON.
4.8
(a) CHIRON shall deliver to ABBOTT upon release of any lot of Raw Material
to Safety Stock Inventory, a certificate of analysis stating the
results of its Release Specification testing. The certificate of
analysis shall be signed by a responsible person duly-authorized to
certify the quality of the Raw Material.
(b) CHIRON shall provide to ABBOTT, with delivery of ordered Raw
Materials, a representative sample of each lot of Raw Material
included within the delivery.
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Upon ABBOTT's receipt of delivery of any Raw Material and the
representative sample(s), ABBOTT will perform the agreed upon
Acceptance Criteria tests to determine acceptability of each Raw
Material lot.
(c) ABBOTT may reject any Raw Material which fails to meet the agreed upon
Acceptance Criteria ("Rejected Raw Material") and shall, within
forty-five (45) days after its receipt of any shipment of Rejected Raw
Material, notify CHIRON in writing of any claim relating to any
shortage in quantity of the shipment of Raw Material or any specific
alleged non-conformity with Acceptance Criteria. In the event of such
notice of rejection or shortage, CHIRON shall, if it concurs, replace
the Rejected Raw Material or make up the shortage within forty-five
(45) days of receiving such notice, at no cost to ABBOTT, and shall
make arrangements with ABBOTT for the return, destruction or other
disposal of any Rejected Raw Material, any charges therefore to be
paid by CHIRON. If CHIRON disagrees with ABBOTT's determination of the
alleged non-conformity, then an independent laboratory, mutually
agreed upon by the parties, shall analyze for Acceptance Criteria a
sample to be furnished by CHIRON of the identical lot(s) of allegedly
non-conforming
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Raw Material delivered to ABBOTT, and both parties shall be bound by
such laboratory's results of such analysis. The losing party shall pay
the costs incurred by the laboratory and all other reasonable
out-of-pocket costs incurred by the other party by reason of such
allegation or actual nonconformance (but not any consequential
damages or lost profits). If CHIRON shall not have an identical batch
for analysis, then ABBOTT shall provide a sample from the shipment for
testing.
(d) If the independent laboratory confirms the delivery's non-conformance,
CHIRON shall replace, at its expense, the Rejected Raw Material with
conforming Raw Material within forty-five (45) days of its receipt of
the report of the independent laboratory confirming the
non-conformity.
(e) Replacement of the Rejected Raw Material by CHIRON pursuant to this
Paragraph 4.8 shall represent the sole remedy of ABBOTT against
CHIRON, ODS and their Affiliates for failure to deliver conforming
goods except that failure to so replace non-conforming goods shall
entitle ABBOTT to the alternate manufacturing provisions of Paragraph
4.9.
<PAGE>
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4.9
(a) Subject to the terms of this Article and notwithstanding Article XII
hereof, if at any time the amount of a Raw Material in the Safety
Stock Inventory is less than ABBOTT's ordered and forecasted
requirements of such Raw Material for the following three (3) months
(an "Inventory Shortfall"), CHIRON shall promptly give ABBOTT written
notice of such Inventory Shortfall, in which case ODS shall have the
right to manufacture, or have manufactured, such Raw Material if
CHIRON does not within forty-five (45) days of such notice return the
Safety Stock Inventory to an amount equal to ABBOTT's ordered and
forecasted requirements of such Raw Material for the following three
(3) months. ODS shall notify ABBOTT within such forty-five (45) day
period of ODS's intention to manufacture or have manufactured such Raw
Material. If under this Paragraph 4.9 ODS becomes the Manufacturing
Party for any Raw Material, ODS shall have the right to manufacture,
or have manufactured, the Raw Material for the longer of six (6)
months or three (3) months after CHIRON notifies ODS that CHIRON has
accumulated a Safety Stock Inventory of the Raw Material equal to
ABBOTT's ordered and forecasted
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requirements of such Raw Material for the following three (3) months.
If ODS elects not to manufacture or have manufactured the Raw
Material, or if within six (6) months of CHIRON's notice of Inventory
Shortfall CHIRON and ODS fail to accumulate among both parties a
Safety Stock Inventory of the Raw Material equal to ABBOTT's
forecasted requirements of such Raw Material for the following three
(3) months, ABBOTT shall have the right to manufacture the Raw
Material for the longer of six (6) months or until three (3) months
after CHIRON and ODS notify ABBOTT that they have accumulated among
both parties a Safety Stock Inventory of the Raw Material equal to
ABBOTT's ordered and forecasted requirements of such Raw Material for
the following three (3) months. If the Manufacturing Party is ABBOTT,
CHIRON shall have the right to manufacture the Raw Material if ABBOTT
does not within forty-five (45) days of such notice return the Safety
Stock Inventory to an amount equal to ODS's forecasted requirements of
such Raw Material for the following three (3) months. CHIRON shall
notify ODS within such forty-five (45) day period of CHIRON's
intention to manufacture or have manufactured such Raw Material. If
under this Paragraph 4.9 CHIRON becomes the Manufacturing Party for
any Raw Material, CHIRON
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shall have the right to manufacture the Raw Material for the longer of
six (6) months or three (3) months after ABBOTT notifies CHIRON that
ABBOTT has accumulated a Safety Stock Inventory of the Raw Material
equal to ODS's forecasted ordered and requirements of such Raw
Material for the following three (3) months. If CHIRON elects not to
manufacture or have manufactured the Raw Material, or if within six
(6) months of ABBOTT's notice of Inventory Shortfall ABBOTT and CHIRON
fail to accumulate among both parties a Safety Stock Inventory of the
Raw Material equal to ODS's ordered and forecasted requirements of
such Raw Material for the following three (3) months, ODS shall have
the right to manufacture the Raw Material for the longer of six (6)
months or three (3) months after CHIRON and ABBOTT notify ODS that
CHIRON and ABBOTT have accumulated among both parties a Safety Stock
Inventory of the Raw Material equal to ODS's ordered and forecasted
requirements of such Raw Material for the following three (3) months.
(b) In the event of a Inventory Shortfall with respect to a Raw Material,
all amounts of such Raw Material produced thereafter until the Safety
Stock Inventory
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of such Raw Material contains the Receiving Party's ordered and
forecasted amounts of such Raw Material for the following three (3)
months, shall be allocated between ABBOTT and ODS in proportion to the
total amount of such Raw Material purchased by each party during the
Calendar Quarter preceding such Inventory Shortfall.
4.10 To effectuate the alternate manufacturing provisions of Paragraph
4.9, CHIRON shall promptly upon ODS's request, with respect to any Raw Material
for which CHIRON is the Manufacturing Party, provide ODS with all information
and materials sufficient to enable ODS to prepare, file and prosecute with the
FDA an establishment license application for the Raw Material. In the event ODS
becomes the Manufacturing Party with respect to the Raw Material pursuant to
Paragraph 4.9 or elects not to become the Manufacturing Party, CHIRON shall
provide ABBOTT with all information and materials sufficient to enable ABBOTT to
prepare, file and prosecute with the FDA an establishment license application
for the Raw Material.
4.11 To effectuate the alternate manufacturing provisions of Paragraph
4.9, ABBOTT shall promptly upon CHIRON's request, with respect to any Raw
Material for which ABBOTT is the
<PAGE>
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Manufacturing Party, provide CHIRON with all information and materials
sufficient to enable CHIRON to prepare, file and prosecute with the FDA an
establishment license application for the Raw Material. In the event CHIRON
becomes the Manufacturing Party with respect to the Raw Material pursuant to
Paragraph 4.9 or elects not to become the Manufacturing Party, ABBOTT shall
provide ODS with all information and materials sufficient to enable ODS to
prepare, file and prosecute with the FDA an establishment license
application for the Raw Material.
4.12 If either ABBOTT or ODS determine that a Raw Material with which it
is being supplied will no longer be utilized in any of its Products and so
notifies the Manufacturing Party, then the Manufacturing Party may elect to be
relieved of its obligation to supply any Receiving Party with such Raw Material
provided that such Manufacturing Party:
(a) notifies the Receiving Party of its intention to terminate its supply
obligations with respect to the Raw Material; and
(b) provides the Receiving Party with the ability to manufacture the Raw
Material, if so requested by the Receiving Party;
<PAGE>
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provided, however, that the Manufacturing Party will be obligated to supply the
Receiving Party with the Raw Material until after the earlier of:
(c) the Receiving Party's being granted an establishment license by the
FDA for the Raw Material; or
(d) one (1) year from the date the Manufacturing Party notifies the
Receiving Party of its intention to terminate its supply obligations
with respect to the Raw Material.
4.13 Within fifteen (15) days following the effective date of this
Agreement, CHIRON shall provide ABBOTT with fifty (50) milligrams of CHIRON's
Antigen designated C100-3. Thereafter, CHIRON shall provide ABBOTT with at least
one hundred (100) milligrams C100-3 per month until September 30, 1989.
4.14
(a) With respect to all Raw Materials, the Manufacturing Party warrants
that before supplying a Raw Material to a Receiving Party it will
place (i) with a mutually agreed upon escrow agent a description of
its process of the manufacture of each Raw Material in
<PAGE>
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sufficiently clear and detailed terms that it can be readily followed
and carried out by a trained biologist to make said Raw Material and,
(ii) with a depository, all organisms containing the genetic material
necessary to enable such biologist to so make said Raw Material.
Furthermore, should the Manufacturing Party alter, modify or change
its process for manufacturing said Raw Material, the Manufacturing
Party agrees to amend the description in escrow and the material
deposited to include such alteration, modification or change. The
description held in escrow and the organisms held in a depository
pursuant to this Paragraph, shall be available to a party only in the
event and to the extent necessary to remedy a Inventory Shortfall
pursuant to Paragraph 4.9 or further to Paragraphs 4.10, 4.11 and
4.12. In such event, the Manufacturing Party shall, upon reasonable
request, provide reasonable assistance to such party such as
instructing appropriately trained personnel, as may be necessary to
enable such party to manufacture said Raw Material. Title to any and
all copies or embodiments of the description shall remain in the
owner. Title to any and all organisms, progeny of organisms, and
genetic material derived from organisms shall remain in the owner. No
party shall
<PAGE>
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allow, without prior written approval of the owner, use of the
information in the description, the organism or any genetic material
derived therefrom for any purpose other than carrying out the limited
manufacturing rights granted pursuant to Paragraphs 4.9, 4.10, 4.11 or
4.12. For example and without limitation, no party shall cause the
alteration or mutation of the organism or its progeny, or the cloning
or sequencing of any genetic material derived from the organism or its
progeny without the prior written approval of the owner. In the event
of any unauthorized use of the information in the description, the
organism, its progeny or any genetic material derived therefrom, all
resulting data, biological material, and/or inventions shall be the
property of the owner of the original information, organism or genetic
or biological material and shall be promptly and fully delivered to
such owner.
(b) Upon termination by the Manufacturing Party of the limited
manufacturing rights granted to a party pursuant to Paragraph 4.9,
such party shall immediately cease to use the information supplied by
the escrow agent and the organism and shall return such information
and all copies or other embodiments
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thereof to the escrow agent, and shall return the organism, its
progeny and any genetic material derived therefrom, to the depository
or destroy it, at the owner's option.
4.15 Raw Material supplied hereunder shall be F.O.B. Manufacturing Party's
facility.
4.16 Title and risk of loss with respect to each Raw Material shall pass
to the Receiving Party upon acceptance of delivery at the Manufacturing Party's
facility.
4.17
(a) Each Manufacturing Party warrants that no Raw Material supplied
hereunder will at the time of acceptance of such delivery be
adulterated or misbranded within the meaning of the Act, or within the
meaning of any applicable federal, state, or local law in which the
definitions or adulteration and misbranding are substantially similar
to those contained in the Act, as such laws are constituted and
effective at the time of delivery, or will be an article which may
not, under the provisions of the Act, be introduced into interstate
commerce. Each Manufacturing Party also
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warrants that the facilities to be used in the manufacture of Raw
Material shall comply with all applicable federal, state, and local
laws and regulations, including good manufacturing practices ("GMP's")
as defined under the Act.
(b) Each party recognizes that ODS's and ABBOTT's use of Raw Material may
be for sale as a federal government contractor to the U.S. government.
Each party, as a Manufacturing Party and at the Receiving Party's
request and expense, agrees to use reasonable efforts to comply with
any additional legal and/or regulatory requirements not set forth in
subparagraph (a) above that may apply to its provisions of Raw
Material to ODS or ABBOTT as a subcontractor in a federal government
contract.
Liability under this Paragraph 4.17 shall be limited to replacement of Raw
Material and shall not extend to damages incurred by a Receiving Party which are
of a consequential or incidental nature except for any third party product
liability.
4.18 Each Receiving Party may once per Calendar Year, upon no less than
thirty (30) days written notice and during reasonable business hours, inspect
the Manufacturing Party's
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facilities used in manufacturing Raw Material, the manufacturing procedures (for
compliance with GMP's and the Receiving Party's quality assurance requirements
only), as well as inventories of Raw Material, work-in-process, production
records and such other matters as may be relevant to proper quality assurance of
Raw Material to be delivered hereunder.
4.19 Each Manufacturing Party shall permit authorized representatives of
the FDA (or any similar government agency of any other country) to inspect the
facilities used in the manufacture of Raw Material, and shall promptly notify
the Receiving Party when it has received notice of such inspection. The
Manufacturing Party shall advise the Receiving Party of the findings of any
such inspection and shall promptly take steps to correct any deficiencies found
by the FDA (or like agency of any other country) relating to the manufacture of
Raw Material.
V. COMPETITION
5.1 It is the intent of the parties that the Purchase Price payable to ODS
by ABBOTT be reduced if ABBOTT encounters substantial third party competition
with respect to Products. Accordingly, subject to the provisions of this Article
V, the Purchase Price may be reduced if the requirements of Paragraphs
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5.2 and 5.3 below related to ABBOTT's activities have been met primarily as a
result of ABBOTT's marketing efforts directed toward a third party competitor.
If, however, either ODS or CHIRON believes that the requirements of Paragraphs
5.2 or 5.3 below related to ABBOTT's activities have been met primarily as a
result of ABBOTT's marketing efforts directed toward reducing the Purchase Price
rather than toward a third party competitor, the Purchase Price shall not be
reduced unless resolved in accordance with the following sentence. Any dispute
among the parties over whether any reduction of Purchase Price under this
Paragraph 5.1 is appropriate by reason of the second sentence of this Paragraph
5.1 and which the parties fail to resolve themselves may only be resolved by
resort to Article XVIII of this Agreement, in which case the neutral shall be
charged with determining and reporting one (1) of the following: a) that ABBOTT
has met the requirements of Paragraph 5.2 or 5.3 with respect to its activities
in an attempt to reduce the Purchase Price and hence is not entitled to an
offset from the Purchase Price under this Article V; or b) that ABBOTT has met
the requirements of Paragraph 5.2 or 5.3 with respect to its activities as a
response to third party competition and hence is entitled to an offset from the
Purchase Price under this Article V.
<PAGE>
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5.2 During each Calendar Quarter after the * anniversary of the
effective date of this Agreement, ABBOTT shall be entitled to an offset against
the Purchase Price if all of the following conditions are satisfied in a
Territory (other than Territory VII) with respect to a * or * (such
Territory and Product are hereinafter respectively referred to as the "Affected
Territory" and the "Affected Product"):
(i) The Affected Product is being Shipped by ABBOTT in the Affected
Market;
(ii) The Affected Product is not a * ;
(iii) a third party (other than ABBOTT, ODS, an Affiliate of either or a
customer of either) is selling a HCV screening test to Donor Centers
in the Affected Territory which is used primarily for the same
purpose as the Affected Product (hereinafter referred to as the
"Third Party Product");
(iv) the Third Party Competition Price to Donor Centers in the Affected
Territory is lower than the Base Price;
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
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(v) sales of the Third Party Product in the Affected Territory during
each of the previous two (2) consecutive Calendar Quarters represent
at least a * Unit market share, determined by an independent
auditor at ABBOTT's expense, for each such Calendar Quarter of the
Affected Market for products primarily utilized for the same purpose;
(vi) the ABBOTT Selling Price for the Affected Product is less than the
Base Price; and
(vii) ABBOTT's overall market share in the Calendar Quarter for Non-HCV
Screening Tests delivered to Donor Centers in the Affected Territory
does not increase by more than * on an aggregate Unit basis for all
such Non-HCV Screening Tests over the immediate previous Calendar
Quarter.
If all the foregoing conditions are satisfied, then ABBOTT shall determine the
Price Differential for the Affected Product in the Affected Market.
5.3 During each Calendar Quarter after the * anniversary of the
effective date of this Agreement, ABBOTT shall be entitled to an offset against
the Purchase Price if
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
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all of the following conditions are satisfied in a Territory (other than
Territory VII) with respect to a * or * (such Territory and Product are
hereinafter respectively referred to as the "Affected Territory" and the
"Affected Product"):
(i) The Affected Product is being Shipped by ABBOTT in the Affected
Market;
(ii) The Affected Product is not a * ;
(iii) a third party (other than ABBOTT, ODS, an Affiliate of either or a
customer of either) is selling a HCV screening test to Plasma Centers
in the Affected Territory which is used primarily for the same
purpose as the Affected Product (hereinafter referred to as the
"Third Party Product");
(iv) the Third Party Competition Price to Plasma Centers in the Affected
Territory is lower than the Base Price;
(v) sales of the Third Party Product in the Affected Territory during
each of the previous two (2) consecutive Calendar Quarters represent
at least a * Unit market share, determined by an
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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independent auditor at ABBOTT's expense, for each such Calendar
Quarter of the Affected Market for products primarily utilized for
the same purpose;
(vi) the ABBOTT Selling Price for the Affected Product is less than the
Base Price; and
(vii) ABBOTT's overall market share in the Calendar Quarter for Non-HCV
Screening Tests delivered to Plasma Centers in the Affected Territory
does not increase by more than * on an aggregate Unit basis for all
such Non-HCV Screening Tests over the immediate previous Calendar
Quarter.
If all the foregoing conditions are satisfied, then ABBOTT shall determine the
Price Differential for the Affected Product in the Affected Market.
5.4 The amount of the Purchase Price offset shall be determined by
deducting from the Purchase Price, calculated pursuant to Paragraphs 3.2-3.22 of
this Agreement, the Price Differential determined according to either Paragraph
5.2 or 5.3. In no event shall the Price Differential exceed the Net Purchase
Price.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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5.5 In any Calendar Quarter the percentage change in ABBOTT's overall Unit
market share for Non-HCV Screening Tests required by condition (vii) of
Paragraphs 5.2 or 5.3 shall be calculated by dividing the difference between:
(a) the market share of Non-HCV Screening Tests held by ABBOTT in the Calendar
Quarter immediately prior to the Calendar Quarter in which a third party first
began selling its Third Party Product in the Affected Market; and (b) the market
share of Non-HCV Screening Tests held by ABBOTT in such Calendar Quarter; by (c)
the market share of Non-HCV Screening Tests held by ABBOTT in such Calendar
Quarter, and multiplying the quotient thereof by one hundred (100). In lieu of
measuring Unit market share, ABBOTT may at its election satisfy condition (vii)
of Paragraphs 5.2 or 5.3 by demonstrating that the total Units of all Non-HCV
Screening Tests Shipped in the Affected Market during such Calendar Quarter
have not increased by more than * * over the total Units of all Non-HCV
Screening Tests Shipped in the Affected Market in the Calendar Quarter
immediately prior to the Calendar Quarter that a third party first began selling
its Third Party Product in the Affected Market. Any calculation under this
Paragraph 5.5 shall not include any Units of a Non-HCV Screening Test sold in a
Territory during the first two (2) Calendar Quarters in which such Non-HCV
Screening Test is first sold by ABBOTT in the Territory.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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5.6 To invoke a Purchase Price offset under Paragraph 5.2 or 5.3, the
parties shall agree upon the independent auditor, as well as the types and
methods of data acquisition to be utilized by such auditor, for quantifying the
prices, market shares, Units and all other determinations required by Paragraphs
5.2, 5.3 or 5.5. If the parties fail to agree upon the choice of an independent
auditor and the types and methods of data acquisition, the parties shall resolve
such issues in accordance with Article XVIII of this Agreement, in which case
the neutral shall be charged with selecting such independent auditor and/or
types and methods of data acquisition.
5.7 Once a Third Party Product captures at least a * * ) market share
of an Affected Market pursuant to clause (v) of Paragraphs 5.2 or 5.3, such
Third Party Product shall be deemed to continue to hold a * market share of
the Affected Market until the Third Party Product is completely withdrawn
from the Affected Market.
5.8 In the event of a dispute between the parties with respect to an
offset of Purchase Price under this Article V, the parties shall resolve such
dispute in accordance with Article XVIII; provided, however, that until such
dispute is resolved ABBOTT shall pay ODS the Purchase Price determined
according to Paragraphs 3.2-3.22.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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5.9 All invoices and prices used in any calculation or determination under
this Article V shall be converted, before such calculation or determination is
made, to U.S. dollars at the same rate of exchange for identical time periods,
such rate of exchange being the rate of exchange used by ABBOTT in the normal
course of its business during the time periods to which this Article V pertains
unless such independent auditor determines ABBOTT's rate of exchange to be
inequitable, in which case such independent auditor shall equitably determine
the rate of exchange to be used.
5.10 With respect to third party competition in any country included
within Territory VII, ABBOTT may request a Purchase Price offset in any such
country because of such third party competition. If ODS and CHIRON agree that
such Purchase Price offset is genuinely warranted in such country, ODS and
CHIRON may agree to a Purchase Price offset in such country; provided, however,
that nothing hereunder shall obligate ODS or CHIRON to offset the Purchase Price
in such country. Any issue concerning Purchase Price offset in any country
included within Territory VII shall be resolved among the parties and shall not
be subject to the provisions of Article XVIII.
5.11 In no event shall the Price Differential exceed * (U.S. * for any
Affected Product unless:
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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(a) an individual who is not under an obligation to assign his or her
interest in any U.S. patent application listed on Exhibit 9.8 to
CHIRON or ODS, or who's right to make, use or sell Product is not
exclusively licensed or assigned to CHIRON or ODS, is joined or
substituted as an inventor or coinventor on a U.S. patent application
listed on Exhibit 9.8 that issues as a U.S. patent (the "Affected
Patent"); and
(b) such individual assigns his or her interests in the Affected Patent,
or foreign counterparts thereof, to a third party or grants any
rights to a third party (including an implied license) under the
Affected Patent, or foreign counterparts thereof, permitting such
third party to make, have made, use or sell Products; and
(c) such third party assigned an interest or granted any rights under the
Affected Patent, or foreign counterparts thereof, markets or
distributes Product under such assignment or grant that does not
infringe a Valid Claim of a Patent Right contained in a patent other
than the Affected Patent.
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VI. INFRINGEMENT
6.1 If, with respect to Territories I-VI, ABBOTT becomes aware of third
party sales of Product which represent a substantial aggregate infringement of a
Patent Right (greater than * of ABBOTT's Units Of Product of Primary Products,
Screening Products, or Diagnostic Products in such Territory) by one or more
third parties in such Territory, ABBOTT will promptly notify ODS and CHIRON.
Should ODS or CHIRON fail to file suit for infringement within one hundred
twenty (120) days after ODS or CHIRON promptly notifies the infringer(s) of the
infringement, ABBOTT shall be entitled to reduce the Purchase Price with respect
to corresponding Primary Products, Screening Products or Diagnostic Products in
such Territory by * of the Net Purchase Price. Said reduced Purchase Price
shall continue to be the prevailing Purchase Price with respect to such Primary
Products, Screening Products or Diagnostic Products in such Territory until said
infringement is abated to a level that no longer constitutes substantial
aggregate infringement and, thereafter, the Purchase Price shall revert to the
full Purchase Price in effect prior to the reduction hereunder. In the event of
any recovery of damages as a result of such infringement, ODS shall deduct all
legal expenses incurred as a result of said infringement from said recovery and
shall pay ABBOTT one third (1/3) of the remainder.
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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VII. CONFIDENTIALITY
7.1 With respect to all confidential information transmitted by either
party to the other in writing and designated confidential, the receiving party
shall during the term of this Agreement and for five (5) years after termination
hereof keep secret and prevent the disclosure of such confidential information
to parties other than its Affiliates and its and their agents, officers,
employees, and representatives authorized to receive such confidential
information, as it would its own confidential information except for such
confidential information which:
(a) at the time of its disclosure was known to the receiving party or an
Affiliate thereof and was not previously subject to any obligation of
confidentiality;
(b) was generally available to the public or was otherwise part of the
public domain at the time of its disclosure;
(c) becomes generally available to the public or otherwise part of the
public domain after its disclosure other than through any act or
omission of the receiving
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party, its Affiliates or their respective agents, officers, employees
or representatives, directly or indirectly, in breach of this
Agreement; or
(d) becomes known to the receiving party or an Affiliate thereof after
its disclosure from a source other than the disclosing party under no
obligation of confidentiality to the disclosing party.
VIII. TERM AND TERMINATION
8.1
(a) The term of this Agreement shall be for the later of seventeen (17)
years from the effective date hereof or the date on which the last
Patent Right expires which is licensed to ABBOTT hereunder and which
includes a Valid Claim which would, but for such license, be
infringed by ABBOTT's making, using or selling a Product.
(b) Paragraph 8.1(a) above notwithstanding, this Agreement with respect
to the European Economic Community shall terminate in each member
country seventeen (17) years from the effective date hereof or on the
expiration
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date of the last to expire Patent Right in such member country based
upon a patent application pending as of the effective date of this
Agreement, whichever is later; provided, however, that prior to the
termination of this Agreement in the first member country in which it
would otherwise terminate pursuant to the foregoing, ABBOTT may in
its discretion elect by written notice to ODS and CHIRON to extend
this Agreement as to all such member countries for an additional term
which shall expire on a country-by-country basis on the expiration
date of the last to expire Patent Right existing in such member
country as of the date of such extension.
(c) After seventeen (17) years from the effective date of this Agreement,
the provisions of Articles III and IV shall only apply to Products
which are Patent Protected by a Valid Claim of a Patent Right and
which are not Patented Protected by a Valid Claim of an ABBOTT Patent
Right, wherein such Valid Claim of the ABBOTT Patent Right has a
Priority Date earlier than the Priority Date of such Valid Claim of
the Patent Right.
<PAGE>
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8.2 Each party has the right to terminate this Agreement, and all licenses
granted hereunder, if
(a) the other party defaults in the performance of any of its material
obligations hereunder and such default is not corrected within sixty
(60) days after receiving written notice of such default, or
(b) the other party becomes bankrupt or insolvent or its business is
placed in the hands of a receiver, assignee, or trustee.
Such right to terminate shall not be the exclusive remedy of the
non-defaulting party and, by exercising such right, the non-defaulting party
shall not waive any other rights or remedies it may have under this Agreement or
otherwise. Resort to any remedy by a party hereto under this Paragraph 8.2 shall
not limit the party from exercising any other rights it may otherwise be
entitled to by law.
IX. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
9.1 Each party hereto acknowledges and agrees
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(a) that this Agreement supercedes all previous understandings,
agreements, and representations among the parties (whether written
or oral) with respect to the subject matter therein;
(b) that no representation or promise not expressly contained in this
Agreement has been made by the other party hereto or by any of its
agents, employees, representatives or attorneys;
(c) that this Agreement is not being entered into on the basis of, or in
reliance on, any promise or representation, expressed or implied, or
on any conditions, provisions or terms related thereto covering the
subject matter hereof, other than those which are set forth expressly
in this Agreement; and
(d) that each party has had the opportunity to be represented by counsel
of its own choice in this matter, including the negotiations which
preceded the execution of this Agreement.
9.2 Each party warrants and represents that it has the full right and
power to make the promises and grant the licenses set forth in this Agreement
and that there are no
<PAGE>
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outstanding agreements, assignments or encumbrances in existence inconsistent
with the provisions of this Agreement.
9.3 EACH MANUFACTURING PARTY DISCLAIMS ALL WARRANTIES EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR PURPOSE, AND ANY WARRANTIES CONCERNING THE INHERENT PROPERTIES OF RAW
MATERIALS SUPPLIED HEREUNDER, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT. EACH MANUFACTURING PARTY MAKES NO WARRANTY AS TO THE MERCHANTABILITY
OR FITNESS FOR PARTICULAR PURPOSE OF ANY PRODUCT OF KNOW-HOW, IMPROVEMENTS
THEREON OR LICENSED PATENT RIGHTS.
9.4 ABBOTT warrants that any third party to whom it provides a Raw
Material, whether as a Raw Material or as a component of an unfinished Product,
shall not transfer such Raw Material to any other third party or use such Raw
Material for purposes other than for preparing or packaging Product for which
ABBOTT will pay a Purchase Price in accordance with Article III.
9.5
(a) ABBOTT warrants that as of the effective date of this Agreement there
are no Abbott Collaborators.
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(b) ABBOTT warrants that its agreement with * * has terminated and that
such agreement does not (i) give any rights to * or (ii) impose any
obligations on ABBOTT or give any rights to ABBOTT, which in either
case would adversely affect the rights and obligations set forth in
this Agreement.
(c) ABBOTT warrants that its agreement with * has terminated and that
such agreement does not (i) give any rights to * or (ii) impose any
obligations on ABBOTT, or give any rights to ABBOTT, which in either
case would adversely affect the rights and obligations set forth in
this Agreement.
(d) ABBOTT warrants that it has no agreement with any third party which
(i) gives any rights to such third party or (ii) imposes obligations
upon ABBOTT or gives any rights to ABBOTT, which in either case would
adversely affect the rights and obligations under this Agreement.
9.6 ODS and CHIRON warrant to ABBOTT that they have entered into one or
more agreements exclusively licensing to ODS Know-How owned or controlled by
CHIRON, to make, have made, use and sell Products, with the right to sublicense
to ABBOTT
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
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under this Agreement, and that neither CHIRON nor ODS has alleged a breach of
any such agreement and that such agreements have not expired or terminated.
9.7 ABBOTT warrants that Exhibit 9.7 lists all U.S. patent applications
filed on or before the effective date of this Agreement directed to Abbott
Know-How and hence subject to Paragraph 2.3 as well as the countries, regional
patent organizations, or international patent systems where applications have
been filed claiming priority from one or more of the listed U.S. applications.
ABBOTT further warrants that all of the inventors named in the applications
listed in Exhibit 9.7 have assigned, or are under an obligation to assign, to
ABBOTT all of their right, title and interest in the inventions claimed.
9.8 CHIRON warrants that Exhibit 9.8 lists all U.S. patent applications
filed on or before the effective date of this Agreement directed to Know-How
owned by CHIRON, as well as the countries, regional patent organizations, or
international patent systems where applications have been filed claiming
priority from one or more of the listed U.S. applications. CHIRON further
warrants that all of the inventors named in the applications listed in Exhibit
9.8 have assigned, or are under an obligation to assign, to CHIRON all of their
right, title
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and interest in the inventions claimed. ODS warrants that ODS has no U.S. patent
applications pending directed to Know-How owned or controlled by ODS.
9.9 ABBOTT warrants that to the best of its knowledge there are no actions
pending before any court alleging to be related to ABBOTT's or an Abbott
Collaborator's interest in Abbott Know-How.
9.10
(a) ODS warrants that to the best of its knowledge there are no actions
pending before any court alleging to be related to ODS's interests in
Know-How, * , U.S. District Court for the * of * No. * Civ *.
(b) ODS believes that * may assert claims in the above-referenced
litigation that this Agreement or the performance hereunder by ODS or ABBOTT
might somehow * arising from the agreements between ODS and * dated * and
* . While ODS believes
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
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that any such claims would be unjustified and meritless, there is
nothing that ODS can do to prevent * from making such baseless
allegations. Because there exists the possibility that * may
attempt to make * a party to the above-referenced litigation or to
a related proceeding, * * resulting from a claim or lawsuit brought
by * against * based on the same or similar issues as are alleged
in the litigation referred to in Paragraph 9.10(a), and based on the
rights and obligations set forth in this Agreement; provided,
however, that * shall fully cooperate with * in the * and/or *
of any such * or * and * shall have * of any such action,
including the * * will not * to * * * including, but not limited
to, except, however, that if * Product as * asserted by *
arising from or based on the same or similar issues as are alleged
in the litigation
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
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referred to in Paragraph 9.10(a) together with the existence of this
Agreement, then * agrees to * * in * of * , and without any
further obligations to * a * of: (i) * if must * , based
on * , by * * of * and * at any time during the *
from the effective date of this Agreement from * such * in *
or * each if the same occurs in * or * ; or (ii) * * if *
must * based on * by * of * and * * at any time during
the * and extending through * after the effective date of this
Agreement from * in * or * * each if the same occurs in *
or *
In the event any such * in (i) or (ii) above causes * to *
Product in any * , * may * this Agreement with respect to such
*
(c) Although ODS believes that any potential * claims concerning this
Agreement would be totally baseless, it nonetheless is willing to
also agree to the following: in the event the * of product by
results in a * as a result of any * or any * asserted by *
arising from or based on the same or similar issues as are alleged in
the litigation referred to in Paragraph 9.10(a) together with the
existence of this Agreement, * shall * any * , provided,
however, that any * by * based on * of Product shall
not * the *
9.11 CHIRON warrants that to the best of its knowledge there are no
actions pending before any court alleging to be related to CHIRON's interest in
Know-How, * U.S. District Court for the * of * No. * Civ. * *
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
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9.12 In the event ODS and ABBOTT become licensees pursuant to an agreement
entered into in accordance with Paragraph 2.9 and either ODS's or ABBOTT's
license thereunder is subsequently terminated, the terminated licensee shall use
all reasonable efforts to prevent termination of the other party's license.
9.13 CHIRON and ODS hereby covenant in the event of the termination of any
agreement between ODS and CHIRON providing for a license of Know-How to ODS,
such termination shall not reduce or terminate the license to ABBOTT granted
under the terms of this Agreement including ABBOTT's right to use any portion of
the Know-How licensed by CHIRON TO ODS.
9.14 CHIRON covenants that it will prosecute its patent applications
related to HCV in a manner intended to achieve the broadest and most effective
patent protection practical in CHIRON's sole judgement.
X. ASSIGNMENT
10.1 The parties hereto shall not assign their rights or obligations under
this Agreement, other than merely the right to be paid, without prior written
consent of the other party; provided, however, that any party hereto may
assign, upon prior notice to the others, its rights and obligations to an
Affiliate or to a legal entity acquiring all or substantially all of such
party's assets.
<PAGE>
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XI. INDEPENDENT CONTRACTORS
11.1 The parties hereto shall not be deemed to be partners, joint
venturers or each other's agents, and neither shall have the right to act on
behalf of the other except as expressly provided hereunder or otherwise
expressly agreed to in writing.
XII. FORCE MAJEURE
12.1 The parties hereto shall not be liable for failure to perform as
required by any provision of this Agreement where such failure results from a
force majeure beyond such party's control. In the event of any delay
attributable to a force majeure, the time for performance affected thereby shall
be extended for a period equal to the time lost by reason of the delay, except
that this Paragraph 12.1 shall not affect any of the Inventory Shortfall
provisions under Article IV.
XIII. INDEMNITY
13.1 Except as hereinafter provided, a Receiving Party shall indemnify
and hold a Manufacturing Party harmless against any and all liabilities,
damages, losses, costs, and expenses, including attorneys' fees, arising from a
suit or claim by a
<PAGE>
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third party alleging a product liability cause of action based on the use,
manufacture or sale of any Product by the Receiving Party, its Affiliates
including without limitation any product liability arising from the inherent
properties of any Product, the use by the Receiving Party of any Raw Material,
the development or manufacture of any Product by the Receiving Party, the use by
the Receiving Party or its Affiliates of Know-How, or the use of any Product
manufactured, used or sold by the Receiving Party or its Affiliates by any human
being regardless of whether such use was contemplated by the parties.
Notwithstanding the foregoing, a Receiving Party need not defend, indemnify and
hold a Manufacturing Party harmless against liabilities finally determined to
have arisen solely and directly from any negligence of the Manufacturing Party
relating to the manufacture or sale of any Raw Material that proximately causes
harm to the Receiving Party or any third party due to the use of contaminated,
non-conforming, adulterated, or mislabeled Raw Material supplied by the
Manufacturing Party when such contamination, non-conformity, adulteration, or
mislabeling could not reasonably have been discovered by the Receiving Party
prior to its use. Nothing herein contained shall require any party hereto to
indemnify another for lost profits.
<PAGE>
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13.2 In order for this indemnification to apply, the Manufacturing Party
must promptly notify the Receiving Party upon receipt of any notice of any claim
or lawsuit. The Receiving Party may, at its discretion and cost, defend such
claims or suits. Assuming that the Receiving Party has chosen not to defend the
suit, then the Manufacturing Party may settle any such claim or suit, but not
without the prior consent of the Receiving Party, which consent shall not be
unreasonably withheld.
XIV. PUBLICITY AND DISCLOSURE
14.1 Unless mutually agreed upon by the parties, no party shall originate
any publicity, news release or other public announcement, written or oral,
whether to the public press, to stockholders or otherwise, relating to this
Agreement, to any amendment hereto or to performance hereunder, save only such
announcement as in the opinion of legal counsel to the party making such
announcement is required by law to be made. The party making any such
announcement shall give the other parties an opportunity to review the form of
the announcement before it is made. The parties acknowledge that CHIRON may file
this Agreement with the Securities and Exchange Commission pursuant to
applicable regulations.
<PAGE>
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XV. COSTS AND EXPENSES
15.1 ODS, CHIRON, and ABBOTT shall each bear and pay for their respective
costs and expenses regarding the negotiation and preparation of this Agreement
and all documents, instruments, and agreements related thereto.
XVI. NOTICES AND PAYMENTS
16.1 Services of all notices in writing and payments to be made as
provided herein shall be deemed duly given and made if sent by courier or by
certified or registered mail, postage prepaid, to the addresses below; the
date of giving such notices shall be the date of mailing:
Ortho Diagnostic Systems, Inc.
U.S. Route 202
Raritan, NJ 08869
Attention: President
Abbott Laboratories
One Abbott Park Road
Abbott Park, IL 60064-3500
Attention: President, Diagnostics Division
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
Attention: President
with a copy to the addressee's General Counsel.
<PAGE>
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XVII. APPLICABLE LAW
17.1 This Agreement shall be construed according to the laws of the State
of New Jersey without giving effect to its principles of conflicts of law, and
without giving effect to any rules or laws relating to arbitration. Should any
provision of this Agreement be held unenforceable or in conflict with any
applicable law, the validity of the remaining provisions shall not be affected
thereby.
XVIII. DISPUTE RESOLUTION
18.1
(a) DISPUTES. The parties recognize that a bona fide dispute as to
certain matters may from time to time arise during the term of
this Agreement which relate to any party's rights and/or
obligations hereunder. In the event of the occurrence of such a
dispute, any party may, by written notice to the other parties,
have such dispute referred to their respective officers designated
below or their successors, for attempted resolution by good faith
negotiations within thirty (30) days after such notice is received.
Said designated officers are as follows:
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For Abbott - President, Diagnostic Division
For ODS - President or Chairman
For Chiron - President
In the event the designated officers are not able to resolve such
dispute within such thirty-day period, any party may invoke the
provisions of Paragraph (b) below within such thirty day period.
(b) ALTERNATIVE DISPUTE RESOLUTION. 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:
(i) If a party intends to begin an ADR to resolve a dispute, such
party shall provide written notice (the "ADR Request") to
counsel for such other party or parties informing such other
party or parties of such 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 8.2 as to
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which party must cure a breach of this Agreement shall be
suspended as to the subject matter of the dispute.
(ii) Within ten (10) business days after the receipt of the ADR
Request, the other party or parties may, by written notice
to the counsel for the party initiating ADR, add additional
issues to be resolved and may add as a party to the ADR a
party to this Agreement who was not named as a respondent.
Within twenty (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. Any party shall have ten (10) business days from
the date the neutral is selected to object in good faith to the
selection of that person. If any party
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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.
(iii) No later than ninety (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
thirty (30) days after the close of hearings. In making the award
the neutral shall rule on each disputed issue and, except as
provided in Paragraph 5.1 above, shall adopt in whole or in part
the proposed ruling of one of the parties on each disputed issue.
(iv) It is the intention of the parties that discovery, although
permitted as described herein, will be extremely limited except
in exceptional circumstances. The neutral shall permit such
limited discovery necessary for an understanding of any
legitimate issue raised in
<PAGE>
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the ADR, including the production of documents. Each party shall
be permitted but not required to take the deposition of not
more than five (5) persons, each such deposition not to exceed
six (6) 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, he may
order such additional discovery as he deems necessary. 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 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 his decision, apply the substantive law of
New Jersey and without giving effect to its principles of
conflicts of law, and without giving effect to any rules or
laws relating to
<PAGE>
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arbitration. 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.
(v) At least fifteen (15) business days prior to the date set for the
hearing, each party shall submit to each other party and the
neutral a list of all documents on which such party intends to
rely in any oral or written presentation to the neutral and a
list of all witnesses, if any, such party intends to call at
such hearing and a brief summary of each witnesses testimony.
At least five (5) business days prior to the hearing, each
party must submit to the neutral and serve on each other party
a proposed ruling on each issue to be resolved. Such writing
shall be limited to representing the proposed rulings, shall
contain no argument or analysis of the facts or issues, and
shall be limited to not more than fifty (50) pages. Not more
than five (5) business days following the close of
hearings, the parties may each submit post hearing briefs
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to the neutral addressing the evidence and issues to be
resolved. Such post hearing briefs shall not be more than
ten (10) pages.
(c) COSTS AND FEES. The neutral shall determine the proportion in which
the parties shall pay the costs and fees of the ADR. Each party shall
pay its own costs (including, without limitation, attorneys fees) and
expenses in connection with such ADR.
(d) CONFIDENTIALITY. The ADR proceeding shall be confidential and the
neutral shall issue appropriate protective orders to safeguard each
parties' Confidential 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.
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(e) AWARD. Any judgment upon the award rendered by the neutral may be
entered in any court having jurisdiction thereof.
XIX. SUPPLY OF HTLV-1 AND HIV-1
19.1 ABBOTT agrees to supply ODS with ODS's manufacturing requirements of
HTLV-1 and HIV-1 reagents at terms to be negotiated in good faith.
XX. DISCLOSURE OF
ABBOTT COLLABORATOR UNPATENTED TECHNOLOGY
20.1 Prior to entering into an agreement with an Abbott Collaborator after
the effective date of this Agreement, ABBOTT shall notify ODS and CHIRON of its
intent to enter into such relationship and shall disclose to ODS and CHIRON the
material business terms of such proposed agreement. ABBOTT shall use all
reasonable efforts to negotiate as low as possible a royalty rate, with respect
to the manufacture, use or sale of Products, with such Abbott Collaborator and
extend the benefit of such agreement to both ABBOTT and ODS under the same
terms and conditions. ABBOTT shall pay any royalty due the Abbott Collaborator
for the use of any Abbott Collaborator Unpatented Technology with respect to its
Product or Antigen or Antibodies manufactured by any Manufacturing Party for
ABBOTT.
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20.2 ABBOTT shall, whenever it receives ABBOTT Collaborator Unpatented
Technology which ABBOTT reasonably believes to be of scientific or business
importance or interest, so notify ODS and CHIRON that such Abbott Collaborator
Unpatented Technology exists but ABBOTT shall not disclose any Abbott
Collaborator Unpatented Technology to either ODS or CHIRON unless ODS and CHIRON
request in writing that such disclosure be made or unless ABBOTT first notifies
ODS and CHIRON that ABBOTT intends to disclose such Abbott Collaborator
Unpatented Technology and receives from ODS and CHIRON written direction to
proceed with such disclosure. ODS and CHIRON may elect to receive disclosure of
such Abbott Collaborator Unpatented Technology for evaluation purposes only for
six (6) months. Within six (6) months of such disclosure ODS and CHIRON may
notify ABBOTT in writing of their election to include such Abbott Collaborator
Unpatented Technology within the definition of Abbott Know-How. ODS or CHIRON
shall pay to ABBOTT any royalty due the Abbott Collaborator with respect to the
manufacture, sale or use of their Products or Antigens or Antibodies
manufactured by any Manufacturing Party for ODS for use of such Abbott
Collaborator Unpatented Technology included within Abbott Know-How. ABBOTT shall
not be deemed to have breached any obligation under this Agreement if its
failure to fulfill its obligation was caused solely by its inability to disclose
Abbott Collaborator Unpatented
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Technology because either ODS or CHIRON have elected not to receive such Abbott
Collaborator Unpatented Technology. If ABBOTT discloses any Abbott Collaborator
Unpatented Technology to ODS or CHIRON without such party's written permission,
ABBOTT shall indemnify and hold ODS and CHIRON harmless against any and all
liabilities, damages, losses, costs, royalties, and expenses, including
attorneys' fees, arising from a suit or claim by a third party alleging a cause
of action based on such disclosure or the use of such Abbott Collaborator
Unpatented Technology by ODS or CHIRON, including the manufacture, sale or use
of any Antigen, Antibody or Product by ODS or CHIRON based upon the use of such
Abbott Collaborator Unpatented Technology. The parties shall agree upon a method
of controlling any such claim that shall protect their respective interests but
in no event shall any party settle such claim without ABBOTT's written consent.
Notwithstanding the foregoing, ABBOTT shall not be obligated to indemnify ODS or
CHIRON for the continued use of any Abbott Collaborator Unpatented Technology
beyond a reasonable period of time after ABBOTT gives ODS and CHIRON written
notice to discontinue the use of any technology that ABBOTT reasonably believes
may constitute Abbott Collaborator Unpatented Technology. If ABBOTT gives such
notice, ODS or CHIRON may elect to discontinue the manufacture for ABBOTT of any
Raw Material that uses such Abbott Collaborator Unpatented Technology.
<PAGE>
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XXI. LABELING
21.1 Subject to any applicable law or regulation to the contrary, ABBOTT
agrees to display in a reasonably noticeable manner on its Product packaging a
notice that such Product is manufactured and sold by ABBOTT under license from
Ortho Diagnostic Systems Inc. and Chiron Corporation.
XXII. NOTIFICATION AND REFORMATION
22.1 NOTIFICATION
If CHIRON or ODS shall file a notification (the "Notification") with the
Competition Directorate of the Commission of the European Communities (the
"Commission") in accordance with the regulations established by the Commission,
ABBOTT shall execute all documents reasonably required by CHIRON or ODS and
shall otherwise reasonably cooperate in connection with the Notification. CHIRON
and/or ODS shall bear all costs incurred by CHIRON and/or ODS relating to the
Notification.
22.2 REFORMATION
If, at any time during the term of this Agreement, any of the parties
receives a request or other communication from the Commission with respect to
the Notification (the "Request"), such party shall promptly inform the other
parties of the
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nature of the Request and the parties shall cooperate as necessary to respond to
the Request. In the event that the Request requires that, unless the parties
undertake to modify this Agreement in certain respects, the Commission considers
this Agreement will or may violate the provisions of Articles 85 and 86 of the
Treaty of Rome, then the parties shall amend this Agreement by making those
minimal modifications necessary to satisfy the concerns of the Commission as set
forth in the Request. Notwithstanding the foregoing, the parties agree that
ABBOTT shall retain its license rights within the European Community.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers as of the day and year set forth
below.
ORTHO DIAGNOSTIC SYSTEMS INC.
By: /s/ William W. Crouse
-------------------------
William W. Crouse
President
Date: 8/17/89
--------------------
ATTEST:
Jason Lipow
- --------------------------
ABBOTT LABORATORIES
By: /s/ David A. Thompson
--------------------------
David A. Thompson
President, Diagnostics
Division
Date: Aug. 17, 1989
------------------------
ATTEST:
Paul E. Roge
- --------------------------
Ass't. Secretary
CHIRON CORPORATION
By: /s/ Gregory B. Lawless
--------------------------
Gregory B. Lawless
President
Date: 8/17/89
------------------------
ATTEST:
/s/ Jane L. Stratton
- --------------------------
Assistant Sec.
<PAGE>
-119-
EXHIBIT 1.13
HBsAG AUSRIA
AUSZYME-MONO CONFIRM
AUSCELL
AUSZYME
AUSZYME-MONO
*
AUSZYME-IMX
*
ANTI-HBC CORAB-RIA
CORZYME
CORZYME-IMX
ANTI-HBS AUSAB-RIA
AUSAB-EIA
AUSAB-QUANT
*
ANTI HBC IGM CORAB-M
CORZYME-M
*
CORZYME-M IMX
HBC-M
HBE HBE-RIA
HBE-RIA (rDNA)
HBE-EIA (rDNA)
HBE-EIA
OTHER DELTA-ANTI RIA
DELTA-ANTI EIA
*
*
HBV-DNA RIA
ANTI-HAV HAVAB-RIA
HAVAB-EIA
HAVAB-M RIA
HAVAB-M EIA
*
HAVAB-M IMX
*
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
-120-
EXHIBIT 2.2
Products which utilize or contain C100-3 and are intended for screening
applications in Donor Centers and Plasma Centers:
US 10 sites 30,000 tests for aggregate of all sites
West Germany 5 sites 10,000 tests for aggregate of all sites
France 5 sites 10,000 tests for aggregate of all sites
Japan 5 sites 10,000 tests for aggregate of all sites
Products which utilize or contain C100-3 and are intended to be Diagnostic
Products only:
US 5 sites 5,000 tests for aggregate of all sites
West Germany 3 sites 5,000 tests for aggregate of all sites
France 3 sites 5,000 tests for aggregate of all sites
Japan 3 sites 5,000 tests for aggregate of all sites
<PAGE>
-121-
EXHIBIT 4.2
C-100 SPECIFICATIONS
1) *
2) *
3) * (expressed as mg/ml).
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 9.7
A. U.S. APPLICATIONS
U. S. S. N. FILING DATE
----------- -----------
* *
B. FOREIGN APPLICATIONS
*
C. EPO
*
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 9.7 (CONT'D)
D. NATIONAL FILING
*
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 9.8 (CONT'D)
C. *EPO
*Designating:
*
D . **PCT
*
E. ENTERING NATIONAL PHASE FROM PCT
*
* = Confidential portions of material have been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE>
Exhibit 10.206
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
- -------------------------------------------------------------------------------
AGREEMENT
between
CHIRON CORPORATION
and
CEPHALON, INC.
January 7, 1994
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE NO.
--------
PART I - DEFINITIONS
ARTICLE 1 - DEFINITIONS
Affiliate................................................................. 2
Allowable Expense......................................................... 2
Alternate Facility........................................................ 2
bFGF...................................................................... 2
Calendar Quarter.......................................................... 2
Cardioxane................................................................ 2
CCP....................................................................... 2
Cephalon.................................................................. 2
Cephalon Agreements....................................................... 2
Cephalon Facility......................................................... 2
Cephalon Technology....................................................... 3
Chiron.................................................................... 3
Chiron Agreements......................................................... 3
Chiron Facility........................................................... 3
Chiron Product............................................................ 3
Chiron Technology......................................................... 3
CIBA...................................................................... 3
CIBA Agreement............................................................ 3
Collaboration............................................................. 3
Commercialization Date.................................................... 4
Compound.................................................................. 4
Continuing Licensee....................................................... 4
Cost...................................................................... 4
Development Committee..................................................... 4
Development Plan.......................................................... 4
Effective Date............................................................ 4
Field..................................................................... 4
GMP Grade................................................................. 4
IND....................................................................... 4
JV........................................................................ 5
Joint Technology.......................................................... 5
JV Technology............................................................. 5
Major Market.............................................................. 5
Management Committee...................................................... 5
Manufacturing Information................................................. 5
Marketing Committee....................................................... 5
Market Exclusivity........................................................ 5
Marketing Plan............................................................ 5
NDA....................................................................... 5
Net Sales................................................................. 6
Operating Losses.......................................................... 6
Operating Profits......................................................... 6
Pricing Approval.......................................................... 7
Product................................................................... 7
-i-
<PAGE>
Regulatory Approval....................................................... 7
Regulatory Standards...................................................... 7
Royalty Territory......................................................... 7
SIBIA Rights.............................................................. 7
SOD....................................................................... 7
Specifications............................................................ 7
Technical Information..................................................... 7
Territory................................................................. 8
Third Party Royalties..................................................... 8
Trademark................................................................. 8
PART II - ACTIVITIES IN MAJOR MARKETS
ARTICLE 2 - PURPOSE, MANAGEMENT, ETC. OF THE COLLABORATION
SECTION 2.1 Purpose of Collaboration............................... 8
SECTION 2.2 Structure.............................................. 8
SECTION 2.3 Management Committee................................... 8
SECTION 2.4 Development Committee.................................. 9
SECTION 2.5 Membership; Duties of Members and Alternate Members.... 9
SECTION 2.6 Authorized Actions..................................... 10
SECTION 2.7 Meetings............................................... 10
SECTION 2.8 Locations of Meetings.................................. 10
SECTION 2.9 Conduct of Meetings.................................... 10
SECTION 2.10 Additional Committees.................................. 11
SECTION 2.11 Exclusion from Allowable Expenses...................... 11
SECTION 2.12 Cooperation of Collaborators........................... 11
SECTION 2.13 Duties of Collaborators................................ 11
ARTICLE 3 - RESEARCH AND DEVELOPMENT ACTIVITIES
SECTION 3.1 Priorities; Plans; Budgets............................. 11
SECTION 3.2 Clinical Supplies of Products.......................... 13
SECTION 3.3 Regulatory Approvals................................... 14
SECTION 3.4 Balancing of Development Costs......................... 15
ARTICLE 4 - COMMERCIALIZATION ACTIVITIES IN MAJOR MARKETS
SECTION 4.1 Marketing Strategy in Major Markets.................... 16
SECTION 4.2 Responsibilities of the Parties........................ 17
SECTION 4.3 Commercialization of Products.......................... 18
SECTION 4.4 Labelling.............................................. 18
SECTION 4.5 Manufacture of Commercial Supplies of Products......... 18
SECTION 4.6 Activities of Chiron Outside the Field................. 21
ARTICLE 5 - LICENSES
SECTION 5.1 Cross-Licenses Prior to Formation of JV................ 23
SECTION 5.2 Licenses to JV......................................... 24
SECTION 5.3 Licenses from JV to Collaborators in the Major Markets. 24
-ii-
<PAGE>
SECTION 5.4 License from JV to Chiron in the Royalty Territory..... 24
SECTION 5.5 Optional Rights........................................ 24
SECTION 5.6 Retained Rights........................................ 26
SECTION 5.7 Prior Rights........................................... 26
SECTION 5.8 Inventions............................................. 26
SECTION 5.9 New Technologies....................................... 26
SECTION 5.10 Maintenance of Technology.............................. 27
SECTION 5.11 Sublicensing of Technology............................. 27
SECTION 5.12 Disclosure of Technology............................... 27
ARTICLE 6 - COMPENSATION IN MAJOR MARKETS
SECTION 6.1 Equal Sharing of Operating Profits and Losses.......... 28
SECTION 6.2 Special Allocations.................................... 28
SECTION 6.3 Off-Label Sales in the Major Markets................... 29
SECTION 6.4 Royalties to Chiron on Sales of Chiron Products........ 29
SECTION 6.5 Calculation of Operating Profits....................... 31
PART III - ACTIVITIES IN ROYALTY TERRITORY
ARTICLE 7 - DEVELOPMENT AND COMMERCIALIZATION ACTIVITIES IN
ROYALTY TERRITORY
SECTION 7.1 Development and Commercialization Responsibilities..... 32
SECTION 7.2 Coordination with Collaboration........................ 32
SECTION 7.3 Diligence in Commercialization of Products............. 33
SECTION 7.4 Ownership of Data...................................... 33
SECTION 7.5 No Allowable Expenses.................................. 33
SECTION 7.6 Assistance by the JV................................... 33
SECTION 7.7 Contingent Cephalon Marketing Rights................... 33
ARTICLE 8 - ROYALTIES AND REPORTS, ETC.
SECTION 8.1 Royalties.............................................. 34
SECTION 8.2 Royalty Rate Adjustments............................... 34
SECTION 8.3 Allocation of Net Sales in the Royalty Territory....... 36
SECTION 8.4 Third Party Royalties.................................. 36
SECTION 8.5 Payment of Royalties................................... 37
SECTION 8.6 Reports................................................ 37
SECTION 8.7 Currency Restrictions.................................. 37
SECTION 8.8 Taxes.................................................. 37
-iii-
<PAGE>
PART IV - GENERAL PROVISIONS
ARTICLE 9 - INTELLECTUAL PROPERTY MATTERS
SECTION 9.1 Intellectual Property Protections...................... 38
SECTION 9.2 Defense of Infringement Claims......................... 38
SECTION 9.3 Prosecution of Third Party Infringements............... 39
SECTION 9.4 Joinder................................................ 40
SECTION 9.5 Settlement of Claims................................... 40
SECTION 9.6 Cooperation............................................ 40
SECTION 9.7 Trademark Matters...................................... 41
ARTICLE 10 - PAYMENTS AND RECORDS
SECTION 10.1 Payments............................................... 42
SECTION 10.2 Books and Records; Accounting.......................... 42
ARTICLE 11 - CERTAIN REGULATORY MATTERS
SECTION 11.1 Governmental Inspections and Inquiries................. 43
SECTION 11.2 Adverse Reactions...................................... 43
SECTION 11.3 Recalls and Market Withdrawals......................... 43
ARTICLE 12 - CONFIDENTIALITY, ETC.
SECTION 12.1 Confidentiality........................................ 44
SECTION 12.2 Injunctive Relief...................................... 45
SECTION 12.3 Publicity.............................................. 45
ARTICLE 13 - CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 13.1 Corporate Status and Authority......................... 46
SECTION 13.2 No Inconsistent Agreements............................. 47
ARTICLE 14 - DISCLAIMER, INDEMNIFICATION AND INSURANCE
SECTION 14.1 No Warranty............................................ 47
SECTION 14.2 Defense of Claims in Territory......................... 47
SECTION 14.3 Costs and Expenses..................................... 47
SECTION 14.4 Indemnity for Excluded Liabilities..................... 48
SECTION 14.5 Procedures for Indemnification......................... 48
SECTION 14.6 Settlements, etc....................................... 48
SECTION 14.7 Limitation of Liability................................ 48
SECTION 14.8 Insurance.............................................. 49
ARTICLE 15 - DISPUTE RESOLUTION
SECTION 15.1 Dispute Resolution..................................... 49
SECTION 15.2 Arbitration............................................ 49
-iv-
<PAGE>
ARTICLE 16 - TERM AND TERMINATION
SECTION 16.1 Term................................................... 50
SECTION 16.2 Termination of Agreement in Full....................... 50
SECTION 16.3 Action upon Change of Control.......................... 50
SECTION 16.4 Partial Termination in Royalty Territory............... 51
SECTION 16.5 Rights and Obligations on Termination.................. 51
SECTION 16.6 Termination upon CCP Transfer.......................... 54
SECTION 16.7 Effective Date of Termination.......................... 54
SECTION 16.8 Survival............................................... 54
SECTION 16.9 Remedies not Exclusive................................. 54
ARTICLE 17 - MISCELLANEOUS
SECTION 17.1 Entire Agreement; Amendment............................ 54
SECTION 17.2 References to CIBA..................................... 55
SECTION 17.3 Force Majeure.......................................... 55
SECTION 17.4 No Interference with Existing Businesses............... 55
SECTION 17.5 Compliance with Law.................................... 55
SECTION 17.6 Waiver................................................. 55
SECTION 17.7 No Assignment.......................................... 55
SECTION 17.8 Severability........................................... 56
SECTION 17.9 Notices................................................ 56
SECTION 17.10 Pronouns............................................... 57
SECTION 17.11 Further Instruments.................................... 57
SECTION 17.12 Governing Law.......................................... 57
SECTION 17.13 Counterparts........................................... 57
SCHEDULE I - Third Party Agreements
SCHEDULE II - Field Exclusion
SCHEDULE III - SOD Technology
SCHEDULE IV - Third Party Royalties
SCHEDULE V - Development Expenses for Transition Period
SCHEDULE VI - Allowable Expenses and Accounting Principles
SCHEDULE VII - Preferred Indications of Chiron
SCHEDULE VIII - Cephalon Nonfield Indications
EXHIBIT A - Specifications
-v-
<PAGE>
AGREEMENT
This AGREEMENT, dated as of January 7, 1994, is made by and between CHIRON
CORPORATION, a Delaware corporation ("Chiron"), and CEPHALON, INC., a Delaware
corporation ("Cephalon"). Chiron and Cephalon are sometimes referred to
herein as "Collaborators" and individually as a "Collaborator".
BACKGROUND
A. Cephalon possesses certain intellectual property rights (including a
license from Cephalon Clinical Partners, L.P. ("CCP")) relating to uses of
insulin-like growth factor 1 ("IGF-1") for certain neurological diseases,
disorders and conditions (such as amyotrophic lateral sclerosis ("ALS") and
peripheral neuropathies) and its production and use as a therapeutic agent in
man. Cephalon has an ongoing clinical development program relating to IGF-1
as a therapeutic agent for ALS and certain peripheral neuropathies. Cephalon
wishes to have the benefit of Chiron's expertise in the development and
production of IGF-1 for neurological disorders.
B. Chiron possesses certain intellectual property rights (including a
license from Ciba-Geigy Ltd. ("CIBA")) relating to uses of IGF-1 for certain
neurological diseases, disorders and conditions (such as diabetic
neuropathy), and its production and use as a therapeutic agent in man.
Chiron wishes to have the benefit of Cephalon's expertise in the development
of therapeutic compounds in the neurological field.
C. Chiron and Cephalon have substantial development programs relating
to their respective uses of IGF-1.
D. Chiron possesses certain intellectual property rights and is
otherwise developing other compounds and methodologies that offer promise of
therapeutic application in neurological applications, together with and
independent of IGF-1.
E. Cephalon intends to develop a sales and marketing expertise focusing
principally on the neurology market.
F. Cephalon and Chiron believe that a joint development program that
optimizes the contributions of each of Cephalon and Chiron will accelerate
the beneficial application of IGF-1 and other compounds to address important
unmet needs for therapeutic products applicable to neurological diseases,
disorders and conditions and will be in their mutual and individual best
interests.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound hereby, the parties agree as
follows:
<PAGE>
PART I - DEFINITIONS
ARTICLE 1 - DEFINITIONS
As used in this Agreement, the following terms shall have the
corresponding meanings set forth below:
(a) "AFFILIATE" means any individual or entity directly or indirectly
controlling, controlled by or under common control with, a party to this
Agreement. Without limiting the foregoing, the direct or indirect ownership
of over 50% of the outstanding voting securities of an entity, or the right
to receive over 50% of the profits or earnings of an entity, shall be deemed
to constitute control.
(b) "ALLOWABLE EXPENSE" means the Costs incurred by the JV or a
Collaborator under this Agreement pursuant to a budget approved by the
Management Committee (including a budget contained in a Development Plan) or
that are otherwise approved by the Management Committee as an Allowable
Expense. The term "Allowable Expense" also shall include the Costs incurred
by a party in a Major Market pursuant to Sections 9.2(c), 9.3(b), 9.3(e) and
9.6 (patent defense and prosecution), Section 11.3 (recalls and withdrawals)
or Section 14.3 (joint liability claims) to the extent such Costs are
determined by the Management Committee to be reasonable.
(c) "ALTERNATE FACILITY" has the meaning specified in Section 4.5(a)
hereof.
(d) "bFGF" means basic Fibroblast Growth Factor.
(e) "CALENDAR QUARTER" means each three-month period beginning on
January 1, April 1, July 1 and October 1 of each year.
(f) "CARDIOXANE-TRADEMARK-" means the substance known by the chemical
name of dexrazoxane, and any analogues or derivatives thereof.
(g) "CCP" means Cephalon Clinical Partners, L.P.
(h) "CEPHALON" means Cephalon, Inc. and any Affiliate thereof.
(i) "CEPHALON AGREEMENTS" means the agreements specified on Schedule I
hereto pursuant to Section 13.1 hereof.
(j) "CEPHALON FACILITY" means the facility of Cephalon located at 9000
Virginia Manor Road, Suite 290, Beltsville, Maryland 20705, or any other
facility of Cephalon approved by the Management Committee for use in the
manufacture of Products under this Agreement.
-2-
<PAGE>
(k) "CEPHALON TECHNOLOGY" means any existing or future (i) patent
application or issued patent owned or possessed (by license or otherwise) by
Cephalon containing a claim that would be infringed by the manufacture, use
or sale of a Product in the Territory, including any addition, continuation,
continuation-in-part, division, extension or renewal thereof, (ii) Technical
Information owned or possessed (by license or otherwise) by Cephalon, (iii)
the rights of Cephalon in and to any Trademark and (iv) all rights of Cephalon
in and to Joint Technology related to a Product; in each case, to the extent
Cephalon has the right to license or sublicense any such right. The term
"Cephalon Technology" shall not include the SIBIA Rights, unless otherwise
agreed in writing by Cephalon and either Chiron or the JV pursuant to Section
5.5 hereof.
(l) "CHIRON" means Chiron Corporation and any Affiliate thereof.
(m) "CHIRON AGREEMENTS" means the agreements specified on Schedule I
hereto pursuant to Section 13.1 hereof.
(n) "CHIRON FACILITY" means the facility or facilities of Chiron
approved by the Management Committee for use in the manufacture of Products
under this Agreement.
(o) "CHIRON PRODUCT" means any Product of Chiron or the Collaboration in
the field that contains SOD, Cardioxane or bFGF, whether alone or in
combination with an active ingredient other than IGF-1.
(p) "CHIRON TECHNOLOGY" means any existing or future (i) patent
application or issued patent owned or possessed (by license or otherwise) by
Chiron containing a claim that would be infringed by the manufacture, use or
sale of a Product in the Territory, including any addition, continuation,
continuation-in-part, division, extension or renewal thereof, (ii) Technical
Information owned or possessed (by license or otherwise) by Chiron, (iii) the
rights of Chiron in and to any Trademark, and (iv) all rights of Chiron in
and to Joint Technology related to a Product; in each case, to the extent
Chiron has the right to license or sublicense any such right.
(q) "CIBA" means Ciba-Geigy Ltd.
(r) "CIBA AGREEMENT" means the Agreement and License between Chiron and
CIBA dated as of December 31, 1993.
(s) "COLLABORATION" means the business of developing and commercializing
Products within the Territory, whether conducted directly by Cephalon and
Chiron or through the JV.
-3-
<PAGE>
(t) "COMMERCIALIZATION DATE" means the date of the first commercial sale
of a Product in a Major Market following Regulatory Approval.
(u) "COMPOUND" means each of IGF-1, SOD, Cardioxane and bFGF and any
composition or product added by the parties to the Collaboration in
accordance with Section 5.9(b) hereof.
(v) "CONTINUING LICENSEE" has the meaning specified in Article 16.5
hereof.
(w) "COST" means the fully burdened, fairly allocated internal costs of
a party, on a consolidated basis, including reasonable and customary
allocations of indirect and overhead expense and charges in the nature of
depreciation and amortization of capitalized cost, and out-of-pocket
expenses, to the extent any of the foregoing were incurred in accordance with
the accounting methodology authorized pursuant to Section 2.3(c) hereof. The
term "Cost" also shall include an interest charge for working capital made
available by a Collaborator for inventory and receivables related to the
Products, upon terms to be approved by the Management Committee. A
Collaborator shall not be required to make working capital available for such
purposes.
(x) "DEVELOPMENT COMMITTEE" means the committee established pursuant to
Section 2.4 hereof.
(y) "DEVELOPMENT PLAN" has the meaning specified in Section 3.1 hereof.
(z) "EFFECTIVE DATE" means the first date when both Cephalon and Chiron
have executed this Agreement.
(aa) "FIELD" means the prophylactic and/or therapeutic treatment of
neurological diseases and disorders in humans including, without limitation,
ALS and peripheral neuropathies such as post-polio syndrome,
chemotherapy-induced peripheral neuropathy, diabetic neuropathy and
Charcot-Marie-Tooth syndrome. The "Field" does not include the uses defined
in SCHEDULE II hereto.
(ab) "GMP GRADE" means production of a Product in accordance with the
Regulatory Standards and the process and procedures described in the
Manufacturing Information.
(ac) "IND" means an application for an Investigational Exemption for a
New Drug filed with the FDA with respect to a Product, or any comparable
filing made with a regulatory authority outside the United States.
-4-
<PAGE>
(ad) "JV" means the joint venture to be established by Cephalon and
Chiron in accordance with Section 2.2 hereof.
(ae) "JOINT TECHNOLOGY" means any invention or discovery, whether or not
patentable and whether or not in the Field (i) that is made solely or jointly
by a JV employee, or (ii) as to which Cephalon and Chiron would be deemed
joint inventors in accordance with U.S. patent laws.
(af) "JV TECHNOLOGY" has the meaning specified in Section 5.2(c) hereof.
(ag) "MAJOR MARKET" means (i) each of the United States, Canada, Mexico,
Austria, Finland, Norway, Sweden and Switzerland and each member country of
the European Economic Community ("EEC") as constituted on the Effective Date,
whether or not any such country remains a member of the EEC during the term
of this Agreement; and (ii) any country which joins the EEC after the
Effective Date. If any of the specified countries dissolves or otherwise
converts into constituent parts, any country or countries resulting from such
dissolution shall automatically be included in the definition of "Major
Market".
(ah) "MANAGEMENT COMMITTEE" means the committee established pursuant to
Section 2.3 hereof.
(ai) "MANUFACTURING INFORMATION" means all chemistry, formulation,
manufacturing, quality control and other information required to be included
in as IND or NDA for a Product.
(aj) "MARKETING COMMITTEE" means the committee to be established pursuant
to Section 4.1 hereof.
(ak) "MARKET EXCLUSIVITY" means, with respect to a Product, any of the
following: (i) sale of the Product in the country in question would infringe
a claim of an issued patent owned or possessed (by license or otherwise) in
whole or in part by a Collaborator or the JV that has not expired or been
held invalid or unenforceable by a court of competent jurisdiction in a final
and nonappealable or non-appealed judgment, or (ii) the Product or the
indication for the Product enjoys market exclusivity by reason of any statute,
regulation, rule or order of a governmental authority in the country.
(al) "MARKETING PLAN" has the meaning specified in Section 4.1 hereof.
(am) "NDA" means a New Drug Application or a Product License Application
filed with the FDA with respect to a Product, or any comparable filing made
with a regulatory authority outside the United States.
-5-
<PAGE>
(an) "NET SALES" means the invoiced price of a Product charged to an
unaffiliated end user in the Territory (i.e., a third party whose use is
intended to result in the consumption or destruction of the Product), net of
returns and rejections, and after deducting, (i) sales or similar taxes,
packaging charges, freight and insurance, to the extent charged to the
purchaser or directly attributable to the specific sale, (ii) cash, trade and
quantity discounts actually allowed and taken, and (iii) allowances, rebates
and commissions actually taken or paid. With respect to sales of a Product
in the Royalty Territory, if a Product is sold with a single invoiced price
in combination with another therapeutically active component or components or
as a combination with diagnostic products where one or more components or
products are not Products, Net Sales under such circumstances shall be
calculated by multiplying Net Sales of the combination by the fraction A/(A
B), in which A is the invoiced price of the Products, if sold separately, and
B is the total invoiced price of any other active components or components in
combination, if sold separately. If the Product and/or the active components
or components in the combination are not sold separately, the values of the
individual components shall be reasonably determined by the Management
Committee. The value of the components of the combination will be based on,
but not limited to, the cost of manufacturing, the value of comparable
components marketed by others and the potential value based on the current
cost of diagnosing and treating the disease. In the case of a combination
product marketed by the Collaboration in the Major Markets, the Management
Committee shall determine the portion of the invoiced price of such product
that is to be treated as Net Sales under this Agreement.
(ao) "OPERATING LOSSES" means any negative number which results from the
calculation of Operating Profits.
(ap) "OPERATING PROFITS" means for the applicable accounting period, the
sum of: [CONFIDENTIAL TREATMENT REQUESTED]; LESS [CONFIDENTIAL TREATMENT
REQUESTED] for the applicable accounting period.
-6-
<PAGE>
(aq) "PRICING APPROVAL" means any pricing or third party reimbursement
approval required for the marketing of a Product.
(ar) "PRODUCT" or "PRODUCTS" means any product consisting of or
containing a Compound, whether alone or in combination with another active
ingredient, to the extent that it is being developed for a use or is used, or
has received Regulatory Approval for a use, in the Field. The term "Products"
excludes any product containing a Compound to the extent it is being
developed for a use or is used, or has received Regulatory Approval for a
use, outside the Field, except to the extent provided under Sections 6.2, 6.3
and 8.3 hereof. The term "Products" also excludes any composition of Chiron
or Cephalon that does not contain a Compound, even if such composition is
used within the Field.
(as) "REGULATORY APPROVAL" means any marketing authorization (including
authorizations approving an NDA) required for a Product, exclusive of Pricing
Approvals.
(at) "REGULATORY STANDARDS" means (i) the facility license requirements
and the current Good Manufacturing Practice regulations of the FDA applicable
to the manufacturing facility for, or the production, storage or handling of
Products, and (ii) any standards of any governmental authority, whether
within or outside the United States (including, without limitation, the
Environmental Protection Agency, OSHA and state and local authorities), that
apply to the manufacturing facility for, or the production, storage or
handling of, Products.
(au) "ROYALTY TERRITORY" means the portion of the Territory other than
the Major Markets.
(av) "SIBIA RIGHTS" means the patent rights, know-how and other
intellectual property rights licensed by Cephalon from The Salk Institute of
Biotechnology/Industrial Associates, Inc. pursuant to the License Agreement
dated March 5, 1992.
(aw) "SOD" means superoxide dismutase compounds and related technology
described on SCHEDULE III hereto.
(ax) "SPECIFICATIONS" means the manufacturing, quality control,
packaging, labelling, shipping and storage specifications for each Product,
to be agreed to by the parties in writing after the Effective Date and made a
part of this Agreement as EXHIBIT A hereto. All Products shall be supplied
under this Agreement in final, finished and vialed form suitable for end use.
(ay) "TECHNICAL INFORMATION" means know-how, trade secrets, technical
information, formulae, processes and data
-7-
<PAGE>
owned or possessed (by license or otherwise) by a Collaborator which relate
to the composition, manufacture or use of a Product, including, without
limitation, preclinical or clinical results.
(az) "TERRITORY" means the world excluding Japan.
(ba) "THIRD PARTY ROYALTIES" means the royalties payable to third party
licensors in the Major Markets under the agreements specified on SCHEDULE IV
hereto and any additional royalties payable in the Major Markets by the JV in
accordance with Section 5.9(a) hereof.
(bb) "TRADEMARK" means any trademark, tradename or trade dress designated
in writing by the Collaboration for use with a Product in the Territory,
whether pending, allowed or registered.
PART II - ACTIVITIES IN MAJOR MARKETS
ARTICLE 2 - PURPOSE, MANAGEMENT, ETC. OF THE COLLABORATION
SECTION 2.1 PURPOSE OF COLLABORATION. The purpose of the Collaboration
is to conduct research, product development and clinical activities and seek
Regulatory Approvals related to Products in the Territory and to
commercialize Products in the Territory. The parties will collaborate
exclusively with each other with respect to the development and
commercialization of the Products in the Territory and the Field. The parties
intend to share equally in certain costs of developing Products in the Major
Markets and in any ultimate Operating Profits or Losses.
SECTION 2.2 STRUCTURE. Chiron and Cephalon will conduct the
Collaboration pursuant to this Agreement until they establish a separate
legal entity for such purpose (the "JV"). The JV shall be formed no later
than the filing of the first application for Regulatory Approval of a
Product in the Territory. The JV, whether a partnership or a corporation
(the "JV"), shall be established in a written amendment or supplement to this
Agreement signed by Cephalon and Chiron.
SECTION 2.3 MANAGEMENT COMMITTEE.
(a) ESTABLISHMENT. The Collaboration, whether conducted directly
by Cephalon and Chiron or through the JV, will be managed by a Management
Committee, which is hereby established to carry out the business of the
Collaboration and implement the provisions of this Agreement.
(b) AUTHORITY. The Management Committee shall exercise such powers
as it deems necessary or desirable to further the purposes of the
Collaboration in the mutual best
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interests of the Collaborators, except to the extent that such powers are
reserved to the Collaborators by this Agreement. In particular, the
Management Committee shall be responsible for (i) approving an annual
development plan and budget for the Collaboration, (ii) reviewing the
performance (including the cost-effectiveness) of each Collaborator's and the
JV's activities, (iii) establishing the accounting methodologies for Costs,
Allowable Expenses and the calculation of Operating Profits in accordance
with paragraph (c) below, and (iv) approving acquisitions of technology from
third parties or the Collaborators pursuant to Section 5.9 hereof.
(c) ACCOUNTING METHODOLOGY. Initially, each Collaborator shall
apply its internal cost accounting principles and methodology in determining
Costs incurred with respect to the Collaboration, which shall be consistent
with generally accepted accounting principles and with the principles and
methodology applied by the Collaborator to its other projects and reasonably
acceptable to the Management Committee. The Management Committee shall review
the internal cost accounting principles and methodology of the Collaborators
and as soon as practicable, but in no event later than receipt of the first
Regulatory Approval of a Product in a Major Market, shall establish a
statement of cost accounting principles and methodology, consistent with
generally accepted accounting principles, to be used by each Collaborator and
the JV in recording and reporting Costs as Allowable Expenses and calculating
Operating Profits under this Agreement. The approved statement shall be
attached to this Agreement as SCHEDULE VI. Any disagreement with respect to
the development of the principles and methodologies to be set forth in
SCHEDULE VI shall be resolved by a reputable firm of independent public
accountants selected by the Collaborators.
SECTION 2.4 DEVELOPMENT COMMITTEE. A Development Committee is hereby
established under the supervision of the Management Committee to monitor all
research and development activities of the Collaboration, to carry out all
other obligations assigned to it under this Agreement or by the Management
Committee, and to make recommendations to the Management Committee with
respect to its activities. In particular, the Development Committee shall be
responsible for (i) preparing a preliminary annual development plan
containing project plans, schedules and annual budgets for approval by the
Management Committee, (ii) approving regulatory efforts of the Collaboration,
including the design of clinical trials to be conducted for each Product in
the Major Markets to the extent provided in Section 3.1, the identification of
clinical trial sites and the preparation and approval of clinical trial
protocols, and (iii) monitoring the progress of clinical activities.
SECTION 2.5 MEMBERSHIP, DUTIES OF MEMBERS AND ALTERNATE MEMBERS. Each
Collaborator shall appoint 50% of the members of
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the Management Committee and Development Committee. The Collaborators shall
designate the initial members promptly after the Effective Date. The
Management Committee members shall be members of the senior management of the
designating Collaborator. Each Collaborator may remove and replace its
representatives on the Management Committee and the Development Committee at
any time, without cause, upon written notice to the other Collaborator. An
alternate member designated by a Collaborator shall be entitled to vote only
in the absence of a regular member designated by such Collaborator. All
references to "members" in this Agreement refers to the regular members and
any alternate member acting in the place of a regular member.
SECTION 2.6 AUTHORIZED ACTIONS. Any action or decision by the
Management Committee or Development Committee must be authorized by the
approval of a majority of each party's designated members on the Committee,
unless otherwise specified in this Agreement. If the Development Committee
can not agree on a particular matter, the matter shall be submitted for
resolution to the Management Committee. If the Management Committee can not
agree on a particular matter, the matter shall be submitted for resolution in
accordance with Article 15 hereof.
SECTION 2.7 MEETINGS.
(a) FREQUENCY. The regular meetings of the Management Committee and
Development Committee shall be scheduled by a consensus of a majority of the
members. Any meetings of the two Committees may be combined into a joint
meeting. In no event, however, shall the Management Committee meet less
frequently than twice each year or the Development Committee meet less
frequently than quarterly. A special meeting of the Management Committee or
the Development Committee also may be called by any two members of the
applicable Committee.
(b) NOTICE. Notice of the date, time and place of every regular or
special meeting and a proposed agenda for the meeting shall be provided to
the members, no later than fifteen (15) days prior to the scheduled date of
the meeting (unless notice is waived in writing by the member).
SECTION 2.8 LOCATIONS OF MEETINGS. The regular and special meetings of
the Management Committee and the Development Committee shall alternate
between the principal business offices of each Collaborator, unless otherwise
agreed by a majority of the members of the applicable Committee.
SECTION 2.9 CONDUCT OF MEETINGS. Any regular or special meeting of the
Management Committee or the Development Committee may be conducted in person
or by conference telephone. The Management Committee and the Development
Committee may act without a meeting if a written consent to the action is
signed by
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a majority of each party's designated members of the applicable Committee.
Minutes reflecting actions taken at meetings shall be maintained with the
books and records of the Collaboration and shall be distributed to the
Collaborators upon request.
SECTION 2.10 ADDITIONAL COMMITTEES. The Management Committee may, from
time to time, delegate specific powers to special-purpose committees of the
Management Committee, other than the Development Committee. Any additional
committees, including the Marketing Committee to be established under Section
4.1 shall be constituted and shall operate in accordance with the procedures
of this Article 2.
SECTION 2.11 EXCLUSION FROM ALLOWABLE EXPENSES. All costs and expenses
incurred by a Collaborator in attending Management Committee, Development
Committee or other committee meetings and in otherwise conducting
negotiations and relations with the other Collaborator shall by borne by the
party incurring the expense and shall not be treated as an Allowable Expense,
unless specified in SCHEDULE VI or authorized by the Management Committee.
SECTION 2.12 COOPERATION OF COLLABORATORS. Each Collaborator shall
furnish to the Management Committee or other applicable committee, subject to
the confidentiality obligations specified in Article 12 hereof, all
information that is reasonably required for purposes of this Agreement.
SECTION 2.13 DUTIES OF COLLABORATORS. Each Collaborator shall perform
its functions under this Agreement in a manner it believes in good faith to
be consistent with the intention of the parties in entering into this
Agreement. Nothing in this Agreement is intended to create a fiduciary duty of
one Collaborator to the other, nor shall it be deemed to require either
Collaborator to expend funds or commit resources in excess of those approved
by the Management Committee.
ARTICLE 3 - RESEARCH AND DEVELOPMENT ACTIVITIES
SECTION 3.1 PRIORITIES; PLANS; BUDGETS.
(a) PRIORITIES. The Development Committee, subject to the approval of
the Management Committee, shall establish the research, development and
regulatory strategies related to the Products in the Field. The initial
priority of the Collaboration shall be assigned to the development of IGF-1
for use in treating ALS and peripheral neuropathies.
(b) ANNUAL PLAN AND BUDGET. Attached as Schedule V hereto is the
initial development budget for each Collaborator's research and development
activities (including third party
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subcontractors) related to Products in the Major Markets for the period from
October 1, 1993 through December 31, 1993. For each calendar year beginning
January 1, 1994, the Development Committee shall prepare and submit to the
Management Committee for approval an annual development plan and budget for
Products in the Major Markets. The plans and budgets included in SCHEDULE V
and each subsequent development plan and budget approved by the Management
Committee are referred to in this Agreement as the "Development Plans".
(c) IMPLEMENTATION. The Development Plans will set forth the
responsibilities of each Collaborator. The parties anticipate that the
regulatory strategies specified in the Development Plan will be implemented
by Cephalon, who will be responsible for, among other things, the conduct of
all clinical trials of Products in the Major Markets (including
post-approval, quality of life, cost-benefit and any other studies necessary
for Regulatory or Pricing Approvals in the Major Markets), the recruitment of
investigators, the monitoring of clinical trials and the performance of any
other activities required to obtain Regulatory Approvals and Pricing
Approvals in the Major Markets. Each party will make available its clinical
and regulatory assets to the extent specified in the applicable Development
Plan. The design of the clinical trials for IGF-1 that were initiated by
Cephalon prior to the Effective Date are hereby deemed to be approved. The
Development Committee will prepare for submission to the Management Committee
the design of the clinical trials that are to be initiated for Products after
the Effective Date.
(d) ASSISTANCE BY EUROCETUS. If determined to be cost-effective by the
Management Committee, Cephalon may contract separately with EuroCetus, B.V.,
a subsidiary of Chiron, for assistance in the clinical development of SOD
bFGF and Cardioxane in the Major Markets outside North America. Cephalon
will reimburse EuroCetus directly for the costs of providing such service,
with the reimbursement treated as an Allowable Expense of Cephalon.
(e) CLINICAL DATA. All clinical data obtained from any studies
conducted pursuant to the Development Plans shall be jointly owned by
Cephalon and Chiron and may be used by either Collaborator inside the Field
and inside the Territory, subject to the JV's right to use all such data for
purposes of the Collaboration in the Territory. All clinical data related to
a Product that is developed pursuant to the Development Plans may be used by
either Collaborator or its licensees or joint development partners outside
the Field or outside the Territory only to the extent required by applicable
law (such as to report adverse experiences) and, in the case of data related
to a Product containing a Compound other than IGF-1, may be used for any
other purpose by a Collaborator or its licensees or joint development
partners outside the Field or outside the Territory
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upon commercially reasonable terms. In addition to the permitted uses
described above, all clinical data related to a Product containing IGF-1 (i)
may be used by CCP, inside or outside the Field, to the extent required under
the applicable Cephalon Agreement, and (ii) may be used by Kyowa Hakko Kogyo in
Japan to the extent required by law (such as to report adverse experiences)
or for any other purpose upon commercially reasonable terms if Cephalon is
obligated to provide Kyowa with exclusive use of such data in Japan; and
(iii) may be used by Chiron and Cephalon outside the Field and inside the
Territory upon commercially reasonable terms. If Cephalon is not obligated to
provide Kyowa Hakko Kogyo with the exclusive use of such data, Chiron may
use the clinical data in Japan upon commercially reasonable terms. The grant
of rights to use clinical data as specified in this paragraph (e) shall not
be deemed to grant any express or implied rights or license in or to any other
intellectual property of a Collaborator.
(f) REPORTS. Each Collaborator shall report to the Development
Committee, upon reasonable request (but not less than every three months),
the status of its activities under the applicable Development Plan. The report
may be in writing or, at the option of the Collaborator, in an oral
presentation made at the Development Committee meeting.
SECTION 3.2 CLINICAL SUPPLIES OF PRODUCTS.
(a) GENERAL. For Products other than IGF-1, the parties agree that
Chiron shall manufacture the Collaboration's requirements of all finished
Products to be used for clinical trials and other development activities
under this Agreement, unless otherwise determined by the Management Committee.
(b) CLINICAL SUPPLIES OF IGF-1. The Management Committee shall
determine the appropriate time for Chiron to begin supplying IGF-1 for
clinical purposes. Until that time, Cephalon will continue to use supplies of
IGF-1 produced at the Cephalon Facility for clinical trials of IGF-1,
including supplies needed to complete the U.S and European clinical trials of
IGF-1 in treating ALS and the pilot trials of IGF-1 in treating peripheral
neuropathies.
(c) SCALE-UP OF CHIRON FACILITY. Chiron will use the Chiron
Facility at Vacaville, California (the "Vacaville Facility") to manufacture
the Collaboration's requirements of IGF-1 for clinical purposes in accordance
with the Development Plans. Chiron will make reasonable efforts, including
making capital investments, to scale-up and expand the applicable Chiron
Facility as needed to allow sufficient GMP Grade Product to be made in
accordance with the quantity, schedule and other requirements of the
applicable Development Plan. Without limiting the foregoing, Chiron will
proceed to install [CONFIDENTIAL TREATMENT REQUESTED]
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[CONFIDENTIAL TREATMENT REQUESTED] at its Vacaville facility. The capital costs
incurred by Chiron for the scale-up activities shall not be an Allowable Expense
(except to the extent depreciation charges are included as a Cost). Chiron shall
take such other steps as may be commercially reasonable so that the Product
produced at the Chiron Facility is acceptable for purposes of obtaining
Regulatory Approvals in the Major Markets in accordance with the Development
Plans.
(d) CEPHALON FACILITY. Chiron and Cephalon will use the Cephalon
Facility to supply IGF-1 for clinical supplies, as described in paragraph
(b), and may use the Cephalon Facility as the Alternate Facility pursuant to
Section 4.5 hereof. Chiron and Cephalon also will discuss using the Cephalon
Facility to manufacture products of Chiron (other than Products) or, to the
extent determined by the Management Committee to be cost-effective, other
Products, provided that neither party is obligated to enter into an agreement
to use the Cephalon Facility for any such purposes.
SECTION 3.3 REGULATORY APPROVALS.
(a) ESTABLISHMENT LICENSES. A Collaborator who supplies a Product
to the Collaboration will be responsible for complying with all establishment
registration requirements and obtaining all other applicable approvals
required for the production of Products at the applicable manufacturing
facility (collectively, "ELAs").
(b) REGULATORY AND PRICING APPROVALS. It is intended that all
Regulatory Approvals and Pricing Approvals relating to Products in the Field
within the Major Markets will be owned by the Collaboration and will be
registered in the name of the JV, unless otherwise required by law, and the
JV shall be organized to permit such ownership. INDs and other pre-market
clearances related to a Product shall be owned by the party conducting the
clinical trials of the Product in the Field, unless otherwise required by
law. To the extent that any INDs or other premarketing clearances or
approvals related to any of the Products in the Field within the Major Markets
are registered in the name of either Collaborator, such Collaborator will take
such actions permitted by law as maybe necessary to transfer such clearances
and approvals to the JV and otherwise will exercise its rights under all such
clearances and approvals in a manner consistent with this Agreement.
(c) DILIGENCE. Each Collaborator shall use all commercially
reasonable efforts, commensurate with those efforts used for its other
products of similar potential and consistent with its obligations under the
Development Plans, to diligently obtain the approvals it is responsible for
under the Development
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Plans. Notwithstanding the foregoing, each Collaborator acknowledges that
there can be no assurance that any ELA, Regulatory Approval or Pricing
Approval will be obtained for a Product in any Major Market.
SECTION 3.4 BALANCING OF DEVELOPMENT COSTS.
(a) BALANCING. The parties deem their initial contribution of
technology to the Collaboration with respect to IGF-1 to be of equal value.
The parties intend that the Allowable Expenses funded by each of them to
manufacture and develop Products in the Major Markets during the period
between October 1, 1993 and the Commercialization Date will be equal as of
the Commercialization Date.
(i) Each party shall fund its own Allowable Expenses under the
Development Plans through December 31, 1994 or, if later, the date when a
Collaborator has incurred an aggregate of $20 million in Allowable Expenses
under the Development Plans; provided, however, that prior to that date
either Collaborator may, but shall not be required to, reimburse the other
Collaborator for any deficiency in the equal funding of Allowable Expenses,
bearing interest at the per annum rate equal to the greater of the Prime
Rate as reported in the BLOOMBERG FINANCIAL MARKETS, COMMODITIES & NEWS (or
any mutually acceptable successor thereto) or the rate of interest imputed
for the purposes of Federal income taxes (as such, the "Balancing Rate") on
the amount of such deficiency as calculated as of the end of each Calendar
Quarter; but in no event shall the Balancing Rate exceed the maximum
interest rate allowed by applicable law.
(ii) From and after the later of December 31, 1994 or the date when
one of the Collaborators has funded an aggregate of $20 million in Allowable
Expenses under the Development Plans, the other party shall reimburse such
party for 100% of the Allowable Expenses funded thereafter by such party,
plus interest at the Balancing Rate on the amount of such deficiency as
calculated as of the end of each Calendar Quarter for the period of the
deficiency, until the aggregate Allowable Expenses (excluding interest)
funded by both parties since October 1, 1993 are shared equally (i.e.,
balanced). Once the aggregate Allowable Expenses have been balanced, each
party shall be responsible for funding 50% of the aggregate Allowable
Expenses incurred thereafter by the parties. The adjustments for Allowable
Expenses shall be made on a quarterly basis under Section 6.5(b) hereof.
(iii) If the Commercialization Date occurs before the Allowable
Expenses incurred under the Development Plans are balanced in full, the
balancing shall continue under
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clause (ii) for such expenses in addition to any balancing required under
Section 6.2(a) hereof.
(iv) Notwithstanding anything to the contrary in this Section
3.4, if the Agreement is terminated for any reason before the Allowable
Expenses are balanced in full under clauses (i) or (ii) or Section 6.2(a),
then there shall be no balancing required except as may occur under Section
16.5(a).
ARTICLE 4 - COMMERCIALIZATION ACTIVITIES IN MAJOR MARKETS
SECTION 4.1 MARKETING STRATEGY IN MAJOR MARKETS. The Management
Committee shall establish a Marketing Committee which shall be responsible
for developing a marketing strategy for each Product on a country-by-country
basis within the Major Markets. The marketing strategy for each year shall be
included in a marketing plan that is approved by the Management Committee (as
so approved, a "Marketing Plan"). Each Collaborator shall appoint 50% of the
permanent and alternate members of the Marketing Committee. Any action or
decision by the Marketing Committee must be authorized by the approval of a
majority of each party's designated members on the committee, unless
otherwise specified in this Agreement. If the Marketing Committee can not
agree on a particular matter, the matter shall be submitted for resolution to
the Management Committee. If the Management Committee can not agree on a
particular matter, the matter shall be submitted for resolution in accordance
with Article 15 hereof.
Without limiting the Marketing Committee's functions, the Marketing
Committee shall, subject to the Management Committee's approval of the
Marketing Plan and subject to Section 4.6:
(i) select the Trademark and the form of label, package insert
and packaging for each Product in each Major Market, subject to Section 9.7
hereof;
(ii) determine the pricing and reimbursement strategy for each
Product in each Major Market;
(iii) coordinate pre-launch activities for Products in the
Major Markets, including symposia and other marketing efforts;
(iv) establish the schedule for Product launch in each Major
Market;
(v) establish anticipated sales targets for each Product in
each Major Market;
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(vi) identify the estimated capacity of Chiron and Cephalon
(if applicable), to be used for the production of Products containing IGF-1
pursuant to Section 4.5(b).
SECTION 4.2 RESPONSIBILITIES OF THE PARTIES.
(a) ALLOCATION OF RESPONSIBILITIES. The Marketing Plan shall
identify the responsibilities of each Collaborator (or its third party
subcontractors) in the promotion, marketing and distribution of Products in
the Major Markets. In determining the appropriate allocation of
responsibilities, the objective of the Marketing Committee is to maximize the
efficiency and effectiveness of the commercialization of the Products in the
Major Markets. Except as provided in this Article 4 or as otherwise
determined by the Management Committee, Chiron will be responsible for
marketing the Products in the Major Markets consistent with the Marketing
Plan and will perform all distribution functions related to the Products,
including, without limitation, distributor and wholesaler contracts,
warehousing, order taking and processing, delivery, invoicing, collections and
returns. However, the parties understand that (i) pursuant to the CIBA
Agreement, CIBA has a right of first refusal under certain circumstances to
sell or promote (including copromotion of) Products containing IGF-1 in the
Territory, and (ii) Cephalon has the exclusive right to detail Products
directly to neurologists in the Major Markets. The Management Committee shall
determine whether a third party marketing arrangement is appropriate in any
country or countries in the Major Markets and its approval shall be required
with respect to the terms of any selling or promotion arrangement with CIBA
on behalf of the JV, which arrangement shall be consistent with the terms of
this Agreement; the Management Committee's approval shall not be withheld
except on the grounds that the agreement is commercially unreasonable.
(b) DILIGENCE. To the extent a Collaborator is responsible for any
of the promotion, marketing or distribution of Products in the Major Markets,
it shall perform such activities using commercially reasonable efforts,
commensurate with those efforts used for its other products of similar
potential and consistent with its obligations under the applicable Marketing
Plans.
(c) EXPANSION OF RIGHTS.
(i) Cephalon shall have the right (but not the obligation) to
detail Products directly to all purchasers in a country in the Major Markets
if at any time during the term of this Agreement (A) Chiron, directly or
indirectly, participates in the marketing or sale of any product (other than
a product containing a Compound) that is approved for the same indication as
a Product marketed or sold in that country by Chiron on behalf
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of the Collaboration, and (B) Chiron has failed to diligently market the
Product under Section 4.2(b) above in that country. The election by Cephalon
to expand its rights to detail Products shall not affect Chiron's rights
under the terms of this Agreement.
(ii) Chiron shall have the right (but not the obligation) to
sell Products directly to neurologists in a country in the Major Markets if
at any time during the term of this Agreement (A) Cephalon, directly or
indirectly, participates in the marketing or sale of any product (other than
a product containing a Compound) that is approved for the same indication as
a Product detailed in that country by Cephalon on behalf of the
Collaboration, and (B) Cephalon has failed to diligently detail the Product
under Section 4.2(b) above in that country. The election by Chiron to expand
its rights to market Products shall not affect Cephalon's rights under the
terms of this Agreement.
(d) ALLOWABLE EXPENSES. In no event shall the Allowable Expenses
related to a detailing, selling or marketing activity exceed the Costs of the
most cost-effective alternative for the Product, as determined by the
Management Committee. The difference, if any, between the Costs of a
Collaborator permitted as an Allowable Expense and its actual costs shall be
the responsibility of that Collaborator.
SECTION 4.3 COMMERCIALIZATION OF PRODUCTS. The parties will explore and
implement, to the extent feasible, an arrangement that will permit each
Collaborator to report an approximately equal amount of Net Sales of Products
in the Major Markets for each accounting period, in accordance with generally
accepted accounting principles. Such arrangement, for example, could involve
dividing the sales markets for Products on a geographic basis.
SECTION 4.4 LABELLING. Subject to Section 4.6, the label, package
insert, packaging, advertising and promotional materials for each Product
shall be approved by the Management Committee. All such materials shall
identify the names of both Collaborators, unless prohibited by applicable
law.
SECTION 4.5 MANUFACTURE OF COMMERCIAL SUPPLIES OF PRODUCTS.
(a) GENERAL. Except as otherwise provided in this Section 4.5, the
Collaboration shall obtain all of its requirements for Products from Chiron.
It is expected that Chiron will manufacture the commercial supplies of
Products containing Compounds other than IGF-1. It is expected that Chiron
will use its Vacaville Facility and Cephalon will use the Cephalon Facility
for the production of commercial supplies of Products containing IGF-1 to the
extent contemplated under paragraph (b) below. Each of the Collaborators, to
the extent that it is manufacturing Products for the Collaboration, shall
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use commercially reasonable efforts to manufacture and supply the finished
Products for commercial purposes of the Collaboration in a cost-effective
manner and in accordance with the terms of this Agreement and a supplemental
manufacturing agreement to be entered into by the parties consistent with the
terms of this Section 4.5.
(b) ALLOCATION OF CAPACITY FOR PRODUCTS CONTAINING IGF-1. Chiron will
use commercially reasonable efforts, including the making of capital
investments, to scale-up and expand the Vacaville Facility to up to
[CONFIDENTIAL TREATMENT REQUESTED] capacity to produce GMP Grade IGF-1 in
quantities sufficient for the Collaboration's commercial purposes as specified
in the Marketing Plans. At the time of the initial determination by the
Management Committee that the [CONFIDENTIAL TREATMENT REQUESTED] capacity of
the Vacaville Facility is not adequate to meet the forseeable requirements of
the Collaboration, Cephalon may elect to use the Cephalon Facility as an
Alternate Facility to provide the additional increments of capacity, not to
exceed [CONFIDENTIAL TREATMENT REQUESTED] of capacity in the aggregate. Any
such election must be made promptly by Cephalon, but no later than thirty (30)
days after the Management Committee's determination is made. In such event,
Cephalon will use commercially reasonable efforts, including the making of
capital investments, to scale-up and expand its manufacturing facility in
Beltsville, Maryland to provide GMP Grade IGF-1 for such purpose. In the event
that the IGF-1 Product requirements of the Collaboration exceed the allocated
manufacturing capacity at the Chiron Facility and the Cephalon Facility, then
Chiron shall use commercially reasonable efforts to expand its Vacaville
Facility or another Chiron facility to produce quantities of Products
sufficient for the Collaboration's commercial purposes as specified in the
Marketing Plans. The schedule for meeting commercial scale capacity for the
Chiron Facility and the Cephalon Facility will be determined by the Management
Committee, taking into account the quantities of IGF-1 required by the
Collaboration, the anticipated regulatory schedule and the time and resources
required to complete additional capital improvements. Each Collaborator shall
take such other steps as may be commercially reasonable so that the Product
produced at its facility or facilities meets the projected shipment schedules
under the applicable Marketing Plan.
(c) EXCESS MANUFACTURING CAPACITY. If the dedicated manufacturing
capacity for the Products at the Chiron Facility and the manufacturing
capacity at the Cephalon Facility as approved in the Marketing Plan is
greater than the actual demand from the Products, then the supply requirements
for the Products shall be allocated between the Chiron Facility and the
Cephalon Facility as determined by the Management Committee.
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(d) SUPPLY SHORTAGES AND INTERRUPTIONS. If the manufacturing capacity
at the Chiron Facility and the Cephalon Facility which is allocated to the
manufacture of the Products under the applicable Marketing Plan is not
adequate to meet the market demand for a Product, each Collaborator will
allocate its other manufacturing capacity, if any, which is used to
manufacture the Compound contained in such Product for the production of such
Product in order to supply such Product in an amount equal to the lesser of
(i) the Product quantities allocated to such Collaborator as set forth in the
applicable Marketing Plan or (ii) such Collaborator's percentage of the
Product supply as set forth in the Marketing Plan multiplied by the actual
market demand for such Product. If a force majeure event under Section 17.3
affects the supply of a Product from the capacity allocated to a Collaborator
under a Marketing Plan, the Collaborator may allocate such capacity ratably
between the Collaboration's requirements and any supply obligations of the
Collaborator to a third party. If the Collaborators cannot satisfy their
obligations to make a Product under this Agreement for a period of sixty (60)
consecutive days, including any failure caused by a force majeure event under
Section 17.3 hereof, the Management Committee shall designate a manufacturer
(which may be a Collaborator) to make the Product until the Collaborators
are able to resume supply of the Products under the terms of this Agreement.
(e) COST-EFFECTIVENESS. The Management Committee will be responsible
for reviewing the cost-effectiveness of the supply of each Product and to
determine the amount of the manufacturing costs of each Collaborator that
will be permitted as an Allowable Expense. [CONFIDENTIAL TREATMENT REQUESTED]
In reviewing the cost-effectiveness of the supply of each Product, the
Management Committee may compare the Costs of manufacturing a Product at the
Chiron Facility and at the Cephalon Facility. If the per unit cost of
manufacturing a Product is higher at one of these facilities, the Management
Committee shall review the cost-effectiveness of such manufacturing and shall
determine the amount of the manufacturing costs that will be permitted as an
Allowable Expense; provided, however, that in considering the cost-
effectiveness of the manufacturing and the Costs permitted as Allowable
Expenses, the Management Committee shall recognize that a reasonable difference
in the costs of manufacturing at the Chiron Facility and the Cephalon Facility
is to be expected in relation to the costs and benefits of maintaining an
Alternative Facility, and is permitted as an Allowable Expense.
(f) PRODUCT QUALITY. Each Collaborator agrees that each shipment of the
Products manufactured by it will conform to the applicable Specifications and
will be made, stored, packaged,
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labeled and controlled by it in accordance with the process and procedures
contained in the applicable Regulatory Standards. Neither Collaborator will
modify any process or procedure used in the manufacture of a Product without
notifying the Management Committee and allowing the Management Committee time
to file any required notices with the applicable regulatory authorities and
obtain any regulatory approvals required in connection with the modification.
EXCEPT AS EXPRESSLY SET FORTH IN THE PRECEDING SENTENCE, NEITHER
COLLABORATOR MAKES ANY EXPRESS OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE,
CONCERNING THE PRODUCTS. SPECIFICALLY, BUT WITHOUT LIMITING THE FOREGOING,
NEITHER COLLABORATOR MAKES ANY EXPRESS OR IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, QUALITY OR
USEFULNESS OF THE PRODUCTS.
(g) FACILITY AUDIT AND INSPECTIONS. A Collaborator manufacturing
Products shall, upon reasonable advance notice, permit the other Collaborator
or any other authorized representative of the Collaboration to audit the
supplying Collaborator's manufacturing process and the manufacturing,
production and control records for the Products. Any such inspection shall be
conducted subject to the confidentiality obligations under this Agreement.
The supplying Collaborator shall take appropriate actions to adopt reasonable
suggestions of the other Collaborator to correct any deficiencies identified
by such inspection or audit. To supplement this provision, the other
Collaborator also may make arrangements, at its cost and expense (which
shall not be an Allowable Expense), to have one of its employees located on
the premises of the Chiron Facility or the Alternate Facility, as the case
may be, to participate in the monitoring of Product manufacture.
(h) DEPOSIT OF BIOLOGICAL MATERIALS. Each Collaborator shall deposit
with a mutually agreeable depository (such as the ATCC), upon terms customary
in the industry, all biological materials used in its manufacturing process,
and shall provide all manufacturing information required to enable a third
party to assume the manufacturing of Products under paragraph (e) above or
Section 16.5 hereof.
SECTION 4.6 ACTIVITIES OF CHIRON OUTSIDE THE FIELD.
(a) Cephalon recognizes that Chiron has development programs, and in the
future may initiate development programs, with respect to the Compounds for
indications outside the Field (a "Chiron Indication Product"). Nothing in
this Agreement shall be construed to limit such rights as Chiron may
otherwise have to develop or commercialize a Chiron Indication Product.
Except as provided in this Article 4.6, all aspects of development and
commercialization for Chiron Indication Products including, without
limitation, clinical development, regulatory strategy and filings, marketing
strategy and tactics, including pricing, may
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be determined solely by Chiron. Without limiting the generality of the
foregoing, for example, Chiron may determine the contents of labelling and
package inserts for any Chiron Indication Product and may determine the
prices at which any such product will be sold, even if the Chiron Indication
Product is identical to a Product (other than with respect to labelling and
package inserts). Chiron may make such determinations in its discretion
notwithstanding that such determinations may effect the corresponding aspect
of the Collaboration's development and commercialization of any Product that
is based upon the same Compound in a manner that may or may not be in the
best interest of the Collaboration.
(b) Notwithstanding (a) above, Chiron agrees to meet and confer in
good faith with Cephalon and consider any recommendation Cephalon may make
with respect to any action by Chiron with respect to Chiron Indication
Products that Cephalon reasonably believes may have any material effects upon
the development or commercialization of Products. Further, to the extent that
any aspect of the development or commercialization of a Chiron Indication
Product is related solely to the corresponding aspect of a Product approved
for sale in the Field based upon the same Compound, Chiron shall take
reasonable steps to conform such aspect of the Chiron Indication Product to
the decisions of the Management Committee regarding the corresponding aspect
of such Product. If a Collaborator is developing a product containing a
Compound for commercialization outside the Field, the Collaborators will use
commercially reasonable efforts to design the Collaboration's Product so that
it would be differentiated from such product.
To the extent that a Chiron Indication Product and a Product
based upon the same Compound are differentiated such that a decision by
Chiron with respect to an aspect of the Chiron Indication Product does not
determine a corresponding aspect of the Product, Chiron shall take reasonable
steps to preserve the differentiating aspect of the Chiron Indication Product
so as to facilitate the implementation of decisions of the Management
Committee regarding the corresponding aspect of the Product.
(c) Any Chiron Indication Product may be marketed under a
tradename, tradedress and trademark chosen by, owned by and registered by
Chiron. If Chiron elects to use the tradename, tradedress and trademark owned
by or registered to the JV for a product that is both a Product and a Chiron
Indication Product, the JV shall thereupon hold the trademark, tradedress
and/or tradename for the benefit of both Chiron and the Collaboration and
any goodwill related to the use thereof by the Parties within the Field shall
accrue to the JV and any goodwill related to the use thereof by Chiron
outside the Field shall accrue to the benefit of Chiron. Conversely, if the
JV elects to use a tradename, tradedress and/or trademark owned and
registered by
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Chiron with respect to such product, Chiron shall hold the trademark,
tradedress and/or tradename for the benefit of both Chiron and the
Collaboration and any goodwill related to the use thereof by the Parties
within the Field shall accrue to the JV and by Chiron outside the Field shall
accrue to the benefit of Chiron.
If a Chiron Indication Product has received Regulatory Approval
in the Territory prior to the receipt by the Collaboration of Regulatory
Approval of a Product containing the same Compound and Chiron reasonably
determines after consultation with the Management Committee that the Product
is not substantially differentiated from a Chiron Indication Product, Chiron
may elect to require the Collaboration to market such Product under the same
tradename, tradedress or trademark as is used in connection with such Chiron
Indication Product. If a Product has received Regulatory Approval in the
Territory prior to the receipt by Chiron of Regulatory Approval of a Chiron
Indication Product containing the same Compound, the Collaboration may
continue to use the tradename, tradedress or trademark approved by the
Management Committee notwithstanding the subsequent approval of such Chiron
Indication Product.
ARTICLE 5 - LICENSES
SECTION 5.1 CROSS-LICENSES PRIOR TO FORMATION OF JV.
(a) PATENT RIGHTS. Cephalon hereby grants to Chiron a
royalty-free, nonexclusive license or sublicense in and to the patent rights
included in the Cephalon Technology for use in the Field to develop and use
Products in the Territory in accordance with the Development Plans. Chiron
hereby grants to Cephalon a royalty-free, nonexclusive license or sublicense
in and to the patent rights included in the Chiron Technology for use in the
Field to develop and use Products in the Territory in accordance with the
Development Plans. The cross-licenses in this clause (a) shall terminate
upon the effectiveness of the licenses in Sections 5.2 and 5.3.
(b) PERPETUAL KNOW-HOW LICENSES. Subject to the restrictions on the
use of clinical data set forth in Section 3.1(e), Cephalon hereby grants to
Chiron a perpetual, nonexclusive, royalty-free license (except for the
royalty payable to the JV under Section 8.1 hereof) to all Technical
Information included in the Cephalon Technology in the Territory, for any use
by Chiron, whether inside or outside the Field. Subject to Section 3.1(e) and
7.4, Chiron hereby grants to Cephalon a perpetual, nonexclusive, royalty-free
license or sublicense (except for the royalty payable to the Chiron under
Section 6.4 hereof) to all Technical Information that is included
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in the Chiron Technology in the Territory, for any use by Cephalon, whether
inside or outside the Field.
SECTION 5.2 LICENSES TO JV.
(a) CEPHALON. Upon the formation of the JV, Cephalon will grant to
the JV an exclusive license in and to the Cephalon Technology for use in the
Field to develop, make, have made, use and sell Products in the Territory,
subject to the perpetual cross-licenses under Section 5.1(b).
(b) CHIRON. Upon the formation of the JV, Chiron will grant to the
JV an exclusive license in and to the Chiron Technology for use in the Field
to develop, make, have made, use and sell Products in the Territory, subject
to the perpetual cross-licenses under Section 5.1(b).
(c) JV TECHNOLOGY. All rights licensed to the JV by the
Collaborators pursuant to this Article 5, together with any invention or
discovery, whether or not patentable, made solely or jointly by a JV employee
after the Effective Date, are collectively referred to herein as the "JV
Technology".
SECTION 5.3 LICENSES FROM JV TO COLLABORATORS IN THE MAJOR MARKETS.
Effective upon the formation of the JV, the JV hereby grants to each of
Cephalon and Chiron a nonexclusive, royalty-free license, with no right to
sublicense, in and to the JV Technology, to the extent required for each
party to conduct its responsibilities in the Major Markets under this
Agreement or any Development Plan or Marketing Plan.
SECTION 5.4 LICENSE FROM JV TO CHIRON IN THE ROYALTY TERRITORY.
Effective upon the formation of the JV, the JV hereby grants to Chiron an
exclusive, worldwide right and license in and to the JV Technology to make,
have made, use and sell Products in the Royalty Territory, subject to the
royalty obligation and other terms and conditions of Article 8 hereof.
SECTION 5.5 OPTIONAL RIGHTS.
(a) SIBIA RIGHTS. Cephalon hereby grants to Chiron and the JV a
nonexclusive option to include in the license under Sections 5.1 or 5.2, as
applicable, the SIBIA Rights of Cephalon inside the Field. If Chiron or the
JV elects in writing to exercise the option inside the Field for purposes of
the Collaboration, the SIBIA Rights shall automatically become part of the
Cephalon Technology and any third party royalties payable as a result of the
use by the JV of the SIBIA Rights in the Major Markets shall be deemed a
Third Party Royalty to be paid by the JV. [CONFIDENTIAL TREATMENT REQUESTED]
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[CONFIDENTIAL TREATMENT REQUESTED] If at any time prior to Chiron's exercise
of its option Cephalon proposes to transfer or terminate any of the SIBIA
Rights, Cephalon shall provide Chiron with notice thereof, sufficiently in
advance to allow Chiron to exercise its option or otherwise obtain such rights
directly from SIBIA. If Chiron exercises its option, Cephalon shall maintain
the SIBIA Rights in accordance with the provisions of Section 5.10.
(b) CEPHALON IGF-1 TECHNOLOGY OUTSIDE THE FIELD.
Except as provided in this Section 5.5; Cephalon shall not develop or
commercialize with any third party, or license intellectual property rights
from any third party related to the development or commercialization of a
product containing IGF-1 for an indication outside the Field using Cephalon
Technology or any proprietary technology that it developed pursuant to the
Development Plans, without the prior written consent of Chiron. Cephalon
currently owns or has license rights to certain technology relating to the
use of IGF-1 for indications outside the Field ("Nonfield Indications"). All
of these Nonfield Indications and the related technology rights are
identified on Schedule VIII hereto. In addition, Cephalon may develop, in the
course of performing activities pursuant to the Development Plans or
otherwise, data which indicates that IGF-1 may have utility for an indication
outside the Field (the "Additional Nonfield Indications"). Cephalon shall
notify Chiron in writing if it develops any such data with respect to an
Additional Nonfield Indication, and such notice shall contain a summary of such
data in reasonable detail to enable Chiron to analyze the merits of the
possible utility. Cephalon hereby grants to Chiron the right to obtain from
Cephalon, exclusive rights to the technology and related Technical Information
for any of the Nonfield Indications and Additional Nonfield Indications for use
outside the Field. Chiron shall notify Cephalon if it wishes to negotiate a
transaction with respect to a Nonfield Indication or Additional Nonfield
Indication. If Chiron and Cephalon, after good faith negotiations, have failed
to reach agreement within 90 days as to the appropriate terms and fair market
compensation for such indication, the parties will submit the determination of
fair market compensation to arbitration pursuant to Section 15.2 hereof.
Notwithstanding the foregoing, Chiron may elect to have the Collaboration
obtain such rights to the Nonfield Indication or Additional Nonfield
Indication on terms mutually acceptable to Chiron and Cephalon. The parties
intend that such terms shall reflect a profit participation for Cephalon that
represents the economic equivalent of a commercially reasonable royalty and the
equal sharing by Chiron and Cephalon of future development costs
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with respect to such indication. The rights of Chiron under this Section 5.5(b)
are subject to any approvals of the CCP Board of Directors or partners
required under the applicable Cephalon Agreements. Cephalon shall use its best
efforts to obtain such approvals, if required.
SECTION 5.6 RETAINED RIGHTS. Each of Chiron and Cephalon reserves the
right to use, respectively, the Chiron Technology and the Cephalon
Technology, for any purpose whatsoever outside the Field and/or outside the
Territory, without liability to the other party or to the JV, except as may
be otherwise specified in Sections 5.5(b), and 6.2(b) and 6.3 hereof.
SECTION 5.7 PRIOR RIGHTS. The rights granted or to be granted by
Cephalon to Chiron and the JV under this Agreement are subject in all
respects to the prior rights of third parties under the Cephalon Agreements.
The rights granted or to be granted by Chiron to Cephalon and the JV under
this Agreement are subject in all respects to the prior rights of third
parties under the Chiron Agreements.
SECTION 5.8 INVENTIONS. All inventions and discoveries resulting from
the Collaboration, whether or not patentable, shall be owned by the
Collaborator making the invention or discovery. All Joint Technology shall be
owned by the JV or, in the absence of the JV, by the Collaborators jointly.
SECTION 5.9 NEW TECHNOLOGIES.
(a) THIRD-PARTY RIGHTS. The Management Committee may acquire from
third parties, if commercially reasonable, such rights to new technology in
the Field as are necessary or desirable for the JV, directly or indirectly,
to make, use and sell Products. The JV (and not the Collaborators
individually) shall be responsible for any payments or royalties for such
rights attributable to the sale of Products in the Major Markets owing to a
third party under an agreement approved by the Management Committee.
(b) ADDITIONAL TECHNOLOGY OF COLLABORATORS. The parties
contemplate that Chiron's biologically-active small molecules and its
proprietary molecular diversity technology and other proprietary Chiron
compounds other than the Chiron Products may be added to the Collaboration,
upon terms to be mutually agreed to by the Collaborators. Similarly, Cephalon
and Chiron may from time to time agree in writing to include within the scope
of this Agreement any other composition, product or technology of a
Collaborator, upon terms to be mutually agreed to by the Collaborators. Unless
and until an agreement is executed providing for the addition of technology to
the Collaboration, the Collaborator shall be free to develop or dispose of such
technology in any manner it sees fit.
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SECTION 5.10 MAINTENANCE OF TECHNOLOGY. In addition to its
obligations under Section 9.1, Cephalon and Chiron shall notify the other
Collaborator before allowing any intellectual property right included in the
Cephalon Technology or the Chiron Technology, as applicable, the loss of
which would have a material adverse effect on the business of the
Collaboration to lapse, expire or terminate before its stated expiration or
termination date, sufficiently in advance to allow the other Collaborator to
seek to obtain the rights to such technology. Each Collaborator shall use
all commercially reasonable efforts to maintain in full force and effect any
license or other agreement pursuant to which it derives rights included in
the Cephalon Technology or the Chiron Technology, as the case may be, the
loss of which would have a material adverse effect on the business of the
Collaboration and shall promptly notify the other if it receives notice or
otherwise becomes aware of any default under any such agreement. Without
limiting the foregoing, neither Collaborator shall amend or modify any such
third-party agreement in a manner that would limit the benefits or expand the
obligations of the Collaboration with respect to any such rights without the
prior consent of the other Collaborator, which consent shall not be unreasonably
withheld. Neither Collaborator shall transfer or assign to an unaffiliated party
any such third party agreement or any other intellectual property right that is
licensed to the other Collaborator or the JV under this Agreement, without the
prior approval of the Management Committee.
SECTION 5.11 SUBLICENSING OF TECHNOLOGY. Cephalon may sublicense its
rights under Section 5.1(b) to its licensees or sublicensees to the extent
required by the corresponding Cephalon Agreement, and Chiron may sublicense
its rights to its licensees or sublicensees. The JV may sublicense all or
part of the JV Technology to one or more third parties, subject to the
execution by the third party of a sublicense agreement satisfactory to the
Management Committee.
SECTION 5.12 DISCLOSURE OF TECHNOLOGY. Promptly after the Effective
Date and from time to time thereafter during the term of this Agreement, each
Collaborator shall promptly disclose to the other the Technical Information
which becomes known to it to the extent licensed to the other Collaborator or
the JV under this Article 5. In addition, each Collaborator shall promptly
disclose to the other Collaborator, in writing, any invention
or discovery included in its license to the other Collaborator of the
Cephalon Technology or Chiron Technology, as the case may be, under Article 5.
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ARTICLE 6 - COMPENSATION IN MAJOR MARKETS
SECTION 6.1 EQUAL SHARING OF OPERATING PROFITS AND LOSSES. The
Operating Profits and Operating Losses shall be shared equally by Cephalon
and Chiron, except for the special allocation described in Section 6.2(a)
hereof.
SECTION 6.2 SPECIAL ALLOCATIONS.
(a) BALANCING OF COSTS AFTER COMMERCIALIZATION DATE. To the extent
the Allowable Expenses of the Collaborators are not equally funded as of the
Commercialization Date, the Collaborator who funded the greater share of
Allowable Expenses shall be entitled to receive from sales of Products in the
Major Markets, prior to the allocation of Operating Profits under Section
6.1, a special allocation equal to [CONFIDENTIAL TREATMENT REQUESTED] plus
[CONFIDENTIAL TREATMENT REQUESTED]. These credits shall be applied until
the Collaborator has received 100% of its excess Allowable Expenses as of the
Commercialization Date, plus interest at the Balancing Rate (as defined in
Section 3.4) on the amount of such excess for the period of the excess amount.
(b) SALES FOR DIABETES. The parties acknowledge that sales of a
Product containing IGF-1 for diabetic neuropathy may overlap with sales of a
product containing IGF-1 for diabetes. The parties therefore agree that if an
IGF-1 Product of the JV receives Regulatory Approval for the treatment of
diabetic neuropathy or a Collaborator receives Regulatory Approval in the
Territory of another product containing IGF-1 for the treatment of diabetes,
the Collaborators will [CONFIDENTIAL TREATMENT REQUESTED] The allocation
established by the parties shall apply regardless of which indication is
approved first, and shall apply in lieu of any provisions of Section 6.3
that might otherwise be applicable.
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SECTION 6.3 OFF-LABEL SALES IN THE MAJOR MARKETS.
(a) If a Product of the Collaboration receives Regulatory Approval
in the Field in a country in the Major Markets prior to the receipt by Chiron
(or its licensee or joint development partner) of Regulatory Approval in such
country of a product containing the same Compound for an indication outside
the Field then all sales of such Product used for an indication (whether
inside or outside the Field) in that country shall be included in the Net
Sales used to calculate Operating Profits and, if applicable, any royalty
payable to Chiron pursuant to Section 6.4 with respect to such country;
provided that all costs and expenses associated with such Net Sales shall be
included as an Allowable Expense. Notwithstanding the foregoing, [CONFIDENTIAL
TREATMENT REQUESTED] shall be excluded from the Net Sales used to calculate
Operating Profits and, if applicable, any royalty payable to Chiron pursuant
to Section 6.4 and in lieu thereof Chiron shall pay to the JV a royalty equal to
[CONFIDENTIAL TREATMENT REQUESTED]; provided that all costs and expenses
associated with such excluded Net Sales shall not be included as an Allowable
Expense. [CONFIDENTIAL TREATMENT REQUESTED]
(b) Upon the receipt by Chiron (or its licensee or joint
development partner) of Regulatory Approval of a product outside the Field
containing the same Compound as a Product, in a country in the Major Markets,
all sales thereafter of the Product for use in any indication outside the
Field in such country (according to market reports accepted in the industry)
shall not be counted for purposes of calculating, with respect to such
country (i) Operating Profits, (ii) any royalty payable to the JV under
Section 6.3(a) above, or (iii) any royalty payable to Chiron pursuant to
Section 6.4. All Costs associated with such sales shall not be permitted as
Allowable Expenses for any purpose.
SECTION 6.4 ROYALTIES TO CHIRON ON SALES OF CHIRON PRODUCTS.
(a) BASE ROYALTY. The JV shall pay to Chiron a reasonable royalty
on Net Sales of Chiron Products in the Major Markets. The royalty rate for
each Chiron Product shall be negotiated by Cephalon and Chiron in good faith
no later than the time an application for a Regulatory Approval is submitted
in a Major Market for the corresponding Chiron Product. The royalty rate
shall be the amount a third party would be willing to pay,
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taking into consideration all relevant factors, including the value of the
technology contributed by Chiron, the market opportunity for the Chiron
Product, the availability of patent protection, the necessity of paying
royalties to third parties, and the Costs and risks incurred or to be
incurred by the Collaborators for development of the Chiron Product. The
royalty rate for Net Sales of Products in the Major Markets shall not be less
than [CONFIDENTIAL TREATMENT REQUESTED] nor more than [CONFIDENTIAL TREATMENT
REQUESTED] for a Chiron Product having Market Exclusivity (but which maximum
rate shall not be more than [CONFIDENTIAL TREATMENT REQUESTED] in the case of a
Chiron Product if the preclinical and Phase I clinical data that is provided by
Chiron is substantially sufficient to permit clinical testing of the
corresponding Product in the Field), and shall not be less than [CONFIDENTIAL
TREATMENT REQUESTED] nor more than [CONFIDENTIAL TREATMENT REQUESTED] for other
Chiron Products.
(b) ADJUSTMENTS TO ROYALTY
(i) The royalty payable under Section 6.4(a) for a Chiron
Product with Market Exclusivity in a particular country in the Major Markets
shall be reduced by an equitable amount to be determined by the Management
Committee with respect to Net Sales of such Chiron Product in the country if
a product containing the same Compound either (A) is being sold by a third
party (other than third parties having rights through a Collaborator) in that
country for the same indication, or (B) is approved for an indication in that
country covered by the patent used to establish Market Exclusivity for the
indication in the same country and there is no other basis for establishing
Market Exclusivity as to the Chiron Product indication in that country.
(ii) The royalty payable under Section 6.4(a) for a Chiron
Product without Market Exclusivity in a particular country in the Major
Markets shall be increased to the rate used in a country where the Chiron
Product has Market Exclusivity, if Chiron can reasonably demonstrate that
even without Market Exclusivity, there is no significant competition for the
Chiron Product with respect to the indication for which the Chiron Product
received Regulatory Approval in the country. For purposes of this provision,
"significant competition" means sales of a product by a third party or third
parties (other than third parties having rights through a Collaborator)
constitute more [CONFIDENTIAL TREATMENT REQUESTED]
(iii) If a royalty rate determined pursuant to Section 6.4(a)
is such that the JV's profit percentage from sales of Chiron Products in the
Major Markets is greater than or less than the percentage anticipated by the
parties as of the Effective Date, Cephalon and Chiron shall meet and confer
as to whether the royalty rates should be increased or decreased to
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provide the JV and Chiron with a fair allocation of the economic benefits in
the Major Markets. Any such adjustment may be made on a country-by-country
and Product-by-Product basis.
SECTION 6.5 CALCULATION OF OPERATING PROFITS.
(a) PRIOR TO FORMATION OF JV.
(i) REPORTING. Within twenty-one (21) days after the end of each
month after the Effective Date until the formation of the JV, Cephalon shall
submit to Chiron a report detailing all Allowable Expenses funded by Cephalon
for the applicable month. Within thirty (30) business days after the end of
a Calendar Quarter, Cephalon shall also submit to Chiron a final report
detailing all Allowable Expenses funded by Cephalon for the applicable
quarter.
(ii) STATEMENT OF ALLOWABLE EXPENSES. Based on the reports of
Cephalon, Chiron shall prepare a pro forma statement of its Allowable
Expenses, combined Allowable Expenses and an inception-to-date report of each
Collaborator's Allowable Expenses which it shall send to Cephalon no later
than forty (40) days after the end of the applicable month. In addition,
based on the quarterly reports of Cephalon, Chiron shall prepare a final pro
forma statement of combined Allowable Expenses and a final inception-to-date
report of each Collaborator's Allowable Expenses for the Cephalon Quarter,
which it shall send to Cephalon no later than sixty (60) days after the end
of the Calendar Quarter. Within fifteen (15) days after receiving the
monthly report, the Collaborators shall make any payments, if required, to
accomplish balancing under Section 3.4 (a) (ii) hereof.
(iii) CONFIRMATION. Each Collaborator's chief financial officer
shall confirm on an annual basis that the quarterly reports furnished during
the year were prepared in accordance with the accounting principles and
methodology authorized pursuant to Section 2.3 (c) hereof.
(b) JV REPORTING. Prior to the formation of the JV, the Management
Committee will determine the appropriate reporting requirements and
procedures, including the timing and method of calculating the preliminary
and the final Operating Profits of the JV, the reporting of Net Sales in the
Royalty Territory and the manner in which payments or refunds of overpayments
will be made, but in no event shall such payments be made less frequently
than sixty (60) days after each Calendar Quarter. The reporting requirements
and procedures of the JV will be based on the approved Marketing Plans. The
Management Committee shall review the reporting requirements and procedures
of the JV when appropriate in light of changes to the Marketing Plans,
changes in or financial statement reporting requirements. Notwithstanding
the foregoing, the Collaborators agree that Chiron will be responsible for
compiling the financial statements
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of the JV and, if the JV is organized as a partnership, shall be the Tax
Partner for federal income tax purposes.
PART III - ACTIVITIES IN ROYALTY TERRITORY
ARTICLE 7 - DEVELOPMENT AND COMMERCIALIZATION ACTIVITIES IN
ROYALTY TERRITORY
SECTION 7.1 DEVELOPMENT AND COMMERCIALIZATION RESPONSIBILITIES. Chiron
shall be responsible for conducting, at its own cost and expense, all
activities relating to the development, manufacture and marketing of the
Products in the Royalty Territory including, without limitation the
establishment of a sales force or distribution network and the promotion and
sale of Products. All Regulatory Approvals and Pricing Approvals in the
Royalty Territory shall be in the name of Chiron.
SECTION 7.2 COORDINATION WITH COLLABORATION.
(a) Chiron shall consult with the Development and Marketing Committees
with respect to the following activities:
(i) the preparation of its development and marketing plans for the
Products in the Royalty Territory;
(ii) the preparation of Product labelling and promotional materials
to be used with Products in the Royalty Territory;
(iii) the designation of Trademarks for the Products in the Royalty
Territory; and
(iv) the choice of supplier of the Products to be developed or sold
in the Royalty Territory.
Subject to Section 4.6, the plans for these activities will be submitted to
the Management Committee for review and approval reasonably in advance of the
specified activity, which approval shall not be withheld except on the
grounds that the proposal is commercially unreasonable. The members of the
Management Committee in reviewing and approving the proposed activities of
Chiron shall act in the interests of the Collaboration and not with regard to
the individual interests of Chiron or Cephalon. Chiron shall keep the
Management Committee informed of its progress under its development and
marketing plans in the Royalty Territory.
(b) Chiron shall not sublicense or enter into any comarketing,
copromotion or similar arrangement in the Royalty Territory without the prior
approval of the Management Committee
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(which consent shall not be unreasonably withheld), excluding wholesaling,
distribution and consignment arrangements, where the third party does not
market or promote the Products. Nothwithstanding the foregoing, CIBA is
hereby approved for purposes of marketing Products in the Royalty Territory,
upon terms to be approved by the Management Committee (which approval shall
not be withheld except on the grounds that the terms are commercially
unreasonable).
SECTION 7.3 DILIGENCE IN COMMERCIALIZATION OF PRODUCTS. Chiron shall use
commercially reasonable efforts, commensurate with those efforts used for its
other products of similar potential and consistent with its obligations under
the development and marketing plans approved under Section 7.2 hereof, to
commercialize the products in the Royalty Territory and to obtain all
Regulatory Approvals and Pricing Approvals needed in the Royalty Territory
for such purposes.
SECTION 7.4 OWNERSHIP OF DATA. All clinical data developed by Chiron for
purposes of Regulatory Approvals in the Royalty Territory shall be owned by
Chiron, but may be used in the Field and Territory by Chiron, Cephalon and
the JV pursuant to the licenses granted under Article 5 hereof and may be
used by Chiron outside the Field and outside the Territory without limitation.
SECTION 7.5 NO ALLOWABLE EXPENSES. None of the costs and expenses
incurred by Chiron in connection with the Royalty Territory shall be an
Allowable Expense hereunder unless expressly approved as such by the
Management Committee.
SECTION 7.6 ASSISTANCE BY THE JV. Chiron may request the assistance of the
JV or Cephalon in the development and commercialization activities related to
the Product. Any such assistance shall be provided upon mutually acceptable
terms.
SECTION 7.7 CONTINGENT CEPHALON MARKETING RIGHTS.
(a) EVENTS. Cephalon shall have the right (but not the obligation) to
detail Products in a country within the Royalty Territory if:
(i) Chiron participates, directly or indirectly, in the
marketing, sale or distribution of any product in that
country that directly competes with an indication included
in a Regulatory Approval for a Product in the same country;
and
(ii) Chiron has failed to diligently develop and commercialize
such Product under Section 7.3 hereof in that country.
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(b) PROCEDURES. Cephalon shall give Chiron written notice of the
existence of the conditions described in clause (a) above, and Chiron shall
have a period of 90 days in which to cure. If the conditions have not been
adequately cured in Cephalon's reasonable judgment by the end of such period,
Cephalon's right to detail shall be effective upon written notice from
Cephalon to Chiron at which time Cephalon shall be entitled to detail all
Products in such country on a nonexclusive basis. Cephalon shall be paid a
reasonable fee by the JV for such activities and Cephalon's costs to detail
the Products shall not be an Allowable Expense. Chiron's obligations to
compensate the JV under Article 8 shall continue as to any Products continued
to be marketed and sold by it or detailed by Cephalon, except that the
royalty payable with respect to such Net Sales shall be reduced to the rate
determined under Section 8.1(b) hereof as to any Product that Cephalon is
detailing. The election by Cephalon to detail Products in the Royalty
Territory shall not affect Chiron's rights under this Agreement.
ARTICLE 8 - ROYALTIES AND REPORTS, ETC.
SECTION 8.1 ROYALTIES. In consideration of the licenses granted to
Chiron under Section 5.4 hereof, Chiron shall pay to the JV in each country
within the Royalty Territory a royalty equal to:
(a) [CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of a Product
containing IGF-1 for a particular indication in any country where the Product
has Market Exclusivity for that indication; and
(b) [CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of a Product
containing IGF-1 for a particular indication in any country where the Product
does not have Market Exclusivity for that indication; and
(c) in the case of any Product containing a Compound other than
IGF-1, a reasonable royalty to be negotiated by the Collaborators in good
faith (which shall be not less than [CONFIDENTIAL TREATMENT REQUESTED] of Net
Sales), to be determined upon the request of either Collaborator but in no event
later than the first commercialization of a Product in the Royalty Territory.
SECTION 8.2 ROYALTY RATE ADJUSTMENTS.
(a) The royalty rate payable under Section 8.1(a) shall be reduced
by an equitable amount to be determined by the Management Committee with
respect to a Product in a country in the Royalty Territory if a product
containing the same Compound either (i) is being sold by a third party (other
than a third party having rights through a Collaborator) in that country for
the same indication, or (ii) is approved for an indication in that country
covered by the patent used to establish Market
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Exclusivity for the indication in the same country and there is no other basis
for establishing Market Exclusivity as to the Product indication in that
country.
(b) The royalty rate payable under Section 8.1(b) for a particular
country in the Royalty Territory shall be increased to the rate specified in
Section 8.1(a) with respect to a Product in such country in the Royalty
Territory if Cephalon can reasonably demonstrate that even without Market
Exclusivity, there is no significant competition for the Product in that
country with respect to the indication for which the Product received
Regulatory Approval in the country. For purposes of this provision,
"significant competition" means sales of a product by a third party or third
parties (other than third parties authorized by a Collaborator under this
Agreement) constitute more than [CONFIDENTIAL TREATMENT REQUESTED]
(c) If a royalty rate specified in Section 8.1 is such that Chiron,
after paying such royalties, would not receive a fair return on sales of the
Products because of market conditions outside of its control, Cephalon and
Chiron shall meet and confer as to whether the royalty rates should be
reduced to provide Chiron with a fair allocation of the economic
benefits in the Royalty Territory. Conversely, if the royalty rates specified
in Section 8.1 are such that the JV's share of profits from the royalties on
sales of Products in the Royalty Territory is less than the share of profits
anticipated by the parties as of the Effective Date, Cephalon and Chiron shall
meet and confer as to whether the royalty rates should be increased to
provide the JV with a fair allocation of the economic benefits in the Royalty
Territory, but in no event shall any such increase exceed a royalty rate of
[CONFIDENTIAL TREATMENT REQUESTED] of Net Sales. Any such adjustment may be made
on a country-by-country and Product-by-Product basis.
(d) The royalty rates payable by Chiron to the JV under Section
8.1 shall be subject to increase to provide Cephalon with a share of
Operating Profits of the JV that is sufficient to pay any royalty or other
compensation Cephalon may owe CCP under an Amended and Restated Product
Development Agreement dated as of August 11, 1992 (the "CCP Agreement"), in a
country within the CCP Territory. For purposes of this clause (d), the term
"CCP Territory" means the geographic area encompassed by the following
countries on the date hereof: Albania, Andorra, Bulgaria, the Commonwealth of
Independent States, Cyprus, Czechoslovakia, Gibraltar, Hungary, Iceland,
Liechtenstein, Malta, Monaco, Poland, Romania, San Marino, Turkey and
Yugoslavia. The term "CCP Territory" shall also include the geographic area
encompassed by any of the republics that were formerly part of the U.S.S.R.
and Yugoslavia, regardless of whether such republics are as of the date hereof
members of the
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Commonwealth of Independent States or Yugoslavia, as applicable. Chiron and
Cephalon shall meet and confer as to whether the royalty rates payable by
Chiron to the JV under Section 8.1 should be increased with respect to any
country or Product to provide Cephalon with a share of Operating Profits of
the JV that is sufficient to provide a fair return to Cephalon.
(e) The royalty rates under Section 8.1 also are subject to
reduction under Sections 9.2 and 9.3 hereof.
SECTION 8.3 ALLOCATIONS OF NET SALES IN THE ROYALTY TERRITORY.
(a) OFF-LABEL SALES. If a Product of the Collaboration receives
Regulatory Approval in the Royalty Territory prior to the receipt by Chiron
(or its licensee or joint development partner) of Regulatory Approval in the
Royalty Territory of a product containing the same Compound as the Product
for an indication outside the Field, then all sales of such Product used for
any indication (whether inside or outside the Field) in the Royalty Territory
shall be included in the Net Sales used to calculate the royalty payable by
Chiron pursuant to Section 8.1. Notwithstanding the foregoing, [CONFIDENTIAL
TREATMENT REQUESTED] All sales of the Product used in any indication outside
the Field (according to market reports accepted in the industry) in a country
in the Royalty Territory shall be excluded for purposes of calculating the
royalty payable by Chiron pursuant to Section 8.1 in such country when Chiron
(or its licensee or joint development partner) receives Regulatory Approval
for an indication outside the Field for such Product either in such country
itself or in any country in the Major Markets, whichever occurs first.
(b) SALES FOR DIABETES. The portion of Net Sales in any country in
the Royalty Territory that is deemed to be sales of an IGF-1 Product for
diabetic neuropathy in such country shall be determined in accordance with
Section 6.2(b).
SECTION 8.4 THIRD PARTY ROYALTIES. Chiron shall be responsible for any
royalties or other compensation owed by either Collaborator under the
agreements specified on SCHEDULE IV to any third party as a result of
Chiron's commercialization of Products in the Royalty Territory including,
without limitation, compensation payable pursuant to the CIBA Agreement and
pursuant to the SIBIA Rights. Notwithstanding the foregoing: (i) Cephalon
shall be responsible for any royalties owed by it pursuant to the CCP
Agreement, (ii) Chiron may offset royalties
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payable to certain third parties to the extent provided in Section 9.2(e),
and (iii) Chiron may include in the determination of Net Sales subject to
royalty under Section 8.1, a deduction for any royalty payable to a third
party in any country in the Royalty Territory under any license or similar
agreement that has been approved by the Management Committee under Section
5.9, but in no event shall the total deductions for such royalties reduce the
royalty payment by more than 50% in the aggregate.
SECTION 8.5 PAYMENT OF ROYALTIES. Royalties payable to the JV under
Section 8.1 shall be due within sixty (60) days after the end of the Calendar
Quarter in which Net Sales were recorded by Chiron.
SECTION 8.6 REPORTS. Unless otherwise agreed by Cephalon and Chiron,
Chiron shall deliver to the JV within sixty (60) days after the end of each
Calendar Quarter in which royalties are due a report of the chief financial
officer of Chiron, setting forth in reasonable detail the calculation of the
royalties payable to the JV for such Calendar Quarter, including the Net
Sales on a Product by Product and country-by-country basis. In addition,
within ninety (90) days after the close of each calendar year, Chiron, upon
Cephalon's request, shall cause its independent public accountants to prepare
a report confirming the procedures performed in reviewing the accuracy of the
aggregate Net Sales and calculation of royalties payable to the JV under
Section 8.1 for that calendar year. Cephalon shall reimburse Chiron for the
reasonable costs of such review.
SECTION 8.7 CURRENCY RESTRICTIONS. If Chiron is prevented from making any
royalty payment to the JV under this Agreement by virtue of restrictions on
currency conversion or repatriation under the statutes, laws, codes or
governmental regulations of the country from which the payment is to be made,
then such royalty payments may be paid by depositing them in the currency in
which accrued to the JV's account in a bank acceptable to the JV in the
country whose currency is involved.
SECTION 8.8 TAXES. All taxes, assessments and fees of any nature levied or
incurred on account of any payments accruing under this Agreement by
national, state or local governments in the Royalty Territory, will be
assumed and paid by Chiron, except taxes levied thereon as income to the JV.
If taxes payable by the JV are required to be withheld by Chiron, they will
be deducted from such payments due to the JV and will be paid by Chiron for
the account of the JV.
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PART IV - GENERAL PROVISIONS
ARTICLE 9 - INTELLECTUAL PROPERTY MATTERS
SECTION 9.1 INTELLECTUAL PROPERTY PROTECTIONS.
(a) CONTROL. Each Collaborator shall be responsible for and shall have
the right to control the prosecution, maintenance, reissue, reexamination,
renewal and extension of the patent applications, issued patents and
Trademarks included in the intellectual property in the Territory licensed by
it to the other Collaborator or to the JV pursuant to Article 5 hereof. Each
Collaborator, upon reasonable request, shall report to the Management
Committee the status of any such activities and shall furnish copies of any
correspondence, file wrappers, office actions and such other documents as the
Management Committee shall reasonably require to monitor the activities in
the Territory. If a Collaborator elects not to continue the prosecution of
any application, reissue, reexamination, renewal or extension or to pay any
maintenance fee related to any such intellectual property right, it shall
notify the Management Committee of such decision at least thirty (30) days in
advance of the due date for such action or payment, and the other
Collaborator shall have the right, but not the obligation, to assume
responsibility therefor. Cephalon shall be responsible for coordinating its
activities with CCP and Chiron shall be responsible for coordinating its
activities with CIBA.
(b) COOPERATION. Each Collaborator shall cooperate with the other
Collaborator to facilitate the activities under paragraph (a) above,
including, without limitation, executing all lawful papers and instruments
and making all rightful oaths and declarations as may be necessary in the
preparation and prosecution of the patent applications, issued patents,
Trademarks and other rights included in the JV Technology or in the transfer
of any prosecution obligations under Section 9.1(a).
(c) ALLOWABLE EXPENSES. The Costs incurred by a Collaborator under this
Section 9.1 shall be an Allowable Expense to the extent approved by the
Management Committee as attributable to the Products in the Major Markets.
The Costs incurred by a Collaborator that are attributable to the Products in
the Royalty Territory shall be borne by the Collaborator.
SECTION 9.2 DEFENSE OF INFRINGEMENT CLAIMS.
(a) NOTICE. If a claim is asserted against Chiron, Cephalon or the JV
by a third party alleging infringement of the third party's intellectual
property rights resulting from the development, manufacture, use or sale of a
Product in the
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Territory, it shall promptly notify the other parties of such claim.
(b) DEFENSE OF CLAIM. The Collaborator against whom the claim has been
made shall control the defense of a claim attributable to the Products in the
Major Markets. Chiron shall be obligated to defend Cephalon and to control
the defense of a claim asserted in the Royalty Territory.
(c) COSTS AND JUDGMENTS IN THE MAJOR MARKETS. The reasonable Costs
(including any judgments or monetary damages awarded in an action) incurred
by a Collaborator in defending an infringement claim shall be an Allowable
Expense to the extent approved by the Management Committee as attributable to
the Products in the Major Markets.
(d) COSTS AND JUDGMENTS IN THE ROYALTY TERRITORY. Chiron shall pay its
out-of-pocket costs (including attorneys' fees) of defending a claim
attributable to the Products in the Royalty Territory, except that Chiron
may apply 100% of its reasonable out-of-pocket costs actually incurred
(including reasonable attorneys' fees) as a credit against any royalty
payments payable to the JV under Section 8.1 hereof. If any damages
(excluding punitive or exemplary damages) awarded against Chiron in a
judgment or order related to such claim are stated to be compensation to the
plaintiff for lost sales, 50% of such amount, to the extent not covered by
insurance, may be offset against the royalties payable under Section 8.1. If
Chiron licenses intellectual property rights to settle such claim in a
settlement that has been approved by Cephalon, Chiron may reduce the
royalties payable under Section 8.1 by 50% of the royalty payable to the
third party.
SECTION 9.3 PROSECUTION OF THIRD PARTY INFRINGEMENTS.
(a) NOTICE. Cephalon and Chiron shall promptly give written notice to
the other party and to the Management Committee of any infringement or
possible infringement of any of the JV Technology by a third party in the
Territory.
(b) CONTROL OF PROSECUTION IN THE MAJOR MARKETS. The Collaborator
owning the infringed technology right may, at its discretion, take such steps
as it deems necessary or desirable to prosecute any such infringement
attributable to Products in the Major Markets. If the Collaborator owning the
technology right does not bring suit or take other appropriate action within
120 days after receiving notice of such claim, the JV (or the Collaborator,
if the JV so elects) shall have the right, but not the obligation, to bring
suit or take other appropriate action with respect to the infringed right.
If the right consists of a joint invention or other JV Technology not owned
solely by a
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Collaborator, the Management Committee shall determine the appropriate
procedures for handling the alleged infringement.
(c) COSTS AND RECOVERIES IN THE MAJOR MARKETS. All monetary
damages awarded in any action against a third party under paragraph (b) that
are attributable to a Product within the Major Markets shall be treated as Net
Sales of the Collaboration in the calculation of Operating Profits. The JV
may retain 100% of any recovery in any proceeding brought by it, except that
any recovery explicitly attributable to a subject matter other than the
Products shall be remitted to the Collaborator who owns the technology right
at issue.
(d) CONTROL OF PROSECUTION IN THE ROYALTY TERRITORY. The JV,
through the Management Committee, shall have the right, but not the
obligation, to control the prosecution of an infringement claim attributable
to the Products in the Royalty Territory. If within forty-five (45) days after
receiving notice of such claim, the JV informs Chiron that it declines to
prosecute any such claim, Chiron shall have the right, but not the
obligation, to bring the claim.
(e) COSTS AND RECOVERIES IN THE ROYALTY TERRITORY. The
prosecuting party shall pay its out-of-pocket costs (including attorneys'
fees) of prosecuting the claim and shall be entitled to retain any award in
such action, except that if Chiron prosecutes the claim, it shall pay the JV
a royalty under Section 8.1 as to any portion of an award it receives that is
stated to be compensation for lost sales (after deducting a proportionate share
of Chiron's legal costs and expenses attributable to the award).
SECTION 9.4 JOINDER. Any party prosecuting or defending a claim under
this Article 9 shall have the right to join the other party in such
proceeding, only if it is necessary to use the other party's name to prosecute
or defend such action; however, the prosecuting party shall indemnify the
joined party against any liabilities asserted against the joined party solely
by virtue of being named in the prosecution and independent of any conduct by
the joined party.
SECTION 9.5 SETTLEMENT OF CLAIMS. Neither Collaborator may settle a
claim described in this Article 9 without the consent of the other
Collaborator, if such settlement would impose any monetary obligation on the
JV or the other Collaborator or require the JV or the other Collaborator to
submit to an injunction or otherwise limit the JV's or the other
Collaborator's rights under this Agreement.
SECTION 9.6 COOPERATION. In conducting the defense or prosecution of
any claim described in this Article 9, Cephalon and Chiron shall consult with
and keep the Management Committee
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informed of the status of the action. Upon reasonable request, the JV and the
Collaborators shall assist the person or persons controlling the defense or
prosecution of an infringement claim, the Costs of which shall be an
Allowable Expense to the extent attributable to the Products in the Major
Markets. In addition, any Collaborator or the JV may protect its interests in
such matter by participating in the proceeding, through attorneys of its
choice, the Costs of which shall not be an Allowable Expense.
SECTION 9.7 TRADEMARK MATTERS.
(a) TRADEMARKS IN MAJOR MARKETS. Subject to Section 4.6, the
Marketing Committee shall approve the Trademarks to be used for each Product
in the Major Markets.
(b) TRADEMARKS IN ROYALTY TERRITORY. Chiron's selection of
Trademarks for Products in the Royalty Territory is subject to Section 7.2
hereof. Chiron agrees that any rights arising to it from the use of the
Trademarks in the Royalty Territory and any goodwill related thereto shall
inure to the benefit of the JV to the extent it is the same or substantially
similar to a Trademark used in the Major Markets for the corresponding
Product.
(c) TRADEMARK PROTECTIONS. Subject to Section 4.6, the Marketing
Committee shall establish procedures and restrictions on use of the
Trademarks for Products in the Territory to be observed by the JV and the
Collaborators to ensure maintenance of the Trademarks in accordance with good
trademark practice.
(d) OWNERSHIP. Subject to Section 4.6, all Trademarks for Products
in the Territory created after the Effective Date shall be deemed Joint
Technology and may be used by a Collaborator with a product containing the
corresponding Compound outside the Field or outside the Territory, subject
to the rights of Kyowa Hakko under the applicable Cephalon Agreement.
(e) NO CONTEST. To the extent permitted by applicable law,
neither Collaborator shall, during the term of this Agreement, contest the
other Collaborator's ownership of the Trademarks licensed to the JV under
this Agreement or take any action adverse to the ownership of such Trademarks
by the other Collaborator or its successors or assigns.
(f) INSPECTION RIGHTS. The JV and each Collaborator shall have
the right, upon reasonable notice and during normal business hours, to
inspect the relevant facilities of the other Collaborator to ensure
compliance by the other Collaborator with this Section 9.7. Any such
inspection shall be subject to the confidentiality obligations of the
inspecting party under Article 12 hereof.
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ARTICLE 10 - PAYMENTS AND RECORDS
SECTION 10.1 PAYMENTS.
(a) PLACE OF PAYMENT. All payments to a Collaborator or the JV
under this Agreement shall be made by wire transfer in immediately available
funds in legal currency of the United States to the account designated in
writing by each Collaborator or the JV, as applicable, from time to time.
(b) CURRENCY CONVERSION. Any amount received in a currency other
than U.S. dollars shall be converted into U.S. dollars using the average
for the month in which the amount was received of the composite conversion
rate for each business day in such month of the non-U.S. currency into U.S.
dollars as reported in the BLOOMBERG FINANCIAL MARKETS, COMMODITIES & NEWS (or
any mutually acceptable successor thereto).
(c) LATE PAYMENT. Payments hereunder shall be deemed paid as of
the day on which they are received at the account designated pursuant to
paragraph (a) above. Any payment which is not paid within fourteen (14) days
after the date when due shall accrue interest thereon from such date until
the date of its payment in full at one (1) percentage point over the per
annum interest rate published as the Prime Rate as reported in the BLOOMBERG
FINANCIAL MARKETS, COMMODITIES & NEWS (or any mutually acceptable successor
thereto), but in no event shall such rate exceed the maximum rate permitted
by applicable law.
SECTION 10.2 BOOKS AND RECORDS; ACCOUNTING.
(a) MAINTENANCE OF RECORDS. The Collaborators and Chiron, on
behalf of the JV shall maintain complete and accurate books of account in
accordance with generally accepted accounting principles and the principles
specified in Schedule V hereto, consistently applied, in sufficient detail to
allow the calculation of Allowable Expenses and Operating Profits under
Article 6 and the calculation of royalties under Article 8 to be verified.
The Collaborators and the JV shall retain such records for so long as the
Management Committee shall specify, and, in the event of a disagreement as to
the necessity of retention, or upon the dissolution of the JV, either
Collaborator may take possession of such records or copies thereof.
(b) ACCESS AND INSPECTION. The Collaborators shall have
reasonable access to the books and records of the JV while in the possession
of the JV, and each Collaborator, at its own expense (which shall not be an
Allowable Expense) and upon reasonable prior notice, shall have the right to
have such books and records examined and audited by outside auditors. Each
Collaborator shall make its relevant books and records available
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for inspection and audit by the independent accountant of the JV or of the
other Collaborator, at the expense of the inspecting party (which shall not
be an Allowable Expense), not more than once each calendar year, upon
reasonable prior notice and during normal business hours. Any inspection of
the JV's or a Collaborator's books and records shall be conducted subject to
the confidentiality obligations under Article 12 hereof.
ARTICLE 11 - CERTAIN REGULATORY MATTERS
SECTION 11.1 GOVERNMENTAL INSPECTIONS AND INQUIRIES
(a) Each Collaborator shall advise the Management Committee of any
governmental visits to, or written or oral inquiries about, any facilities or
procedures for the manufacture, storage or handling of a Product in the
Territory, promptly (but in no event later than fifteen (15) calendar days)
after such visit or inquiry. Each Collaborator shall furnish to the Management
Committee, within fifteen (15) days after receipt, a copy of any report or
correspondence issued by the governmental authority in connection with such
visit or inquiry, purged only of confidential or proprietary
information that is unrelated to the Products or the activities under this
Agreement.
(b) Each Collaborator also shall advise the other Collaborator of
any inquiry, notice or investigation initiated or made by any governmental
authority relating to the promotion, advertisement, marketing or sale of the
Products or any of its other activities under this Agreement. The
Collaborators shall cooperate and consult with each other in responding to
the governmental authority.
SECTION 11.2 ADVERSE REACTIONS. The Development Committee shall
establish procedures by which each Collaborator will receive notice from the
other Collaborator and the JV, and will report to the JV and the other
Collaborator, any adverse drug reactions related to a Product (including
events related to products containing the same active ingredient as
Products outside the Field and/or outside the Territory). The procedures shall
be established by the Development Committee promptly after the Effective Date.
Until such procedures ard approved, each Collaborator shall use its customary
procedures in complying with the reporting requirements of applicable law and
shall promptly furnish a written copy of any such report to the other
Collaborator. Prior to the establishment of the JV, Cephalon shall serve as
the reporting party for adverse events related to the Products.
SECTION 11.3 RECALLS AND MARKET WITHDRAWALS. If at any time (i) any
governmental or regulatory authority issues a request, directive, or order
that a Product be recalled or
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withdrawn, or (ii) a court of competent jurisdiction orders such a recall or
withdrawal in a Major Market, or (iii) the Management Committee determines
that a Product should be recalled in a Major Market, the parties shall take
all appropriate corrective actions to effect the recall or withdrawal. If a
dispute about the necessity of a recall can not be resolved in accordance
with Section 15.1 hereof, either Collaborator may order a recall (without
proceeding to arbitration under Section 15.2) if in its reasonable judgment
it is required to do so by law. The cost and expenses of notification and
destruction or return of the recalled or withdrawn Product in a Major Market
shall be an Allowable Expense.
ARTICLE 12 - CONFIDENTIALITY, ETC.
SECTION 12.1 CONFIDENTIALITY.
(a) INFORMATION RECEIVED FROM OTHER PARTY. Each Collaborator (a
"Recipient") will keep in confidence any confidential or proprietary
information (the "Confidential Information") received from the other
Collaborator (the "Furnishing Party"), whether furnished before or after
the Effective Date. The foregoing obligations shall not apply to, and the
definition of "Confidential Information" does not include:
(i) information that at the time of the use or disclosure by
the Recipient was already in the public domain other than through the
fault of the Recipient or its employees, licensees, agents or
subcontractors, in violation hereof;
(ii) information that was rightfully known by the Recipient (as
shown by its written records) prior to the date of disclosure by the
Furnishing Party to the Recipient in connection with this Agreement; or
(iii) information that was received by the Recipient on an
unrestricted basis from a source under no duty of confidentiality to the
Furnishing Party; or
(iv) information that Recipient believes in good faith is
required to be disclosed to comply with any applicable law, regulation or
order of a government authority of court of competent jurisdiction
(including any securities laws applicable to a Collaborator), in which
event the disclosing party shall use all reasonable efforts to advise the
other Collaborator in advance of the need for such disclosure; or
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(v) information that is independently developed by the
Recipient without reliance on the Confidential Information.
Notwithstanding the foregoing, it is understood that each Collaborator may
disclose Confidential Information to its employees, licensees, consultants,
contractors and agents if such persons are subject in writing to obligations
of confidentiality with respect to such information to the same extent the
Collaborator is so obligated hereunder.
INFORMATION DEVELOPED FOR COLLABORATION. Information in the Field
that is developed by a Collaborator in the conduct of a specific objective or
activity under a Development Plan and which would be proprietary to the
Collaborator shall be treated as Confidential Information by both
Collaborators. Any disclosure or publication of such information shall be
subject to the approval of the Management Committee (which approval shall not
be unreasonably withheld). A Collaborator shall not be obligated to treat any
other information developed by it (whether before or during the Collaboration)
as Confidential Information.
SECTION 12.2 INJUNCTIVE RELIEF. Each Collaborator acknowledges that damages
for breach of the covenants contained in Section 12.1 would be an inadequate
remedy, and that in the event of any such breach, the other Collaborator
shall be entitled to seek injunctive or other equitable relief in addition to
any and all remedies available at law or in equity, including the recovery of
damages and reasonable attorneys' fees.
SECTION 12.3 PUBLICITY. The Collaborators shall consult with each other
and coordinate all press releases and similar public announcements by the
Collaborator concerning the existence and terms of this Agreement and the
activities and progress of the Collaboration. The Collaborators shall not
disclose the confidential terms of such agreements to any third parties
without the prior written consent of the other party or parties thereto. This
Section 12.3 shall not apply to the extent that any disclosure is (a) of
information in the public domain other than through the fault of the
Collaborator or its employees, licensees, agents or subcontractors, in
violation hereof, (b) believed in good faith to be required to comply with
any applicable law, regulation or order of a government authority of court of
competent jurisdiction (including any securities laws applicable to a
Collaborator), in which event the disclosing party shall use all reasonable
efforts to advise the other Collaborator in advance of the need for such
disclosure, or (c) is made, under confidentiality, to a recipient who is a
licensor, licensee or potential licensor or licensee and to whom such
disclosure is reasonably required to define the scope of rights
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which could be granted to the recipient without violating the terms of this
Agreement.
ARTICLE 13 - CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 13.1 CORPORATE STATUS AND AUTHORITY. Each Collaborator
represents to the other that as of the date hereof:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) it has the corporate power and authority to execute, deliver and
perform this Agreement;
(c) the execution, delivery and performance of this Agreement has been
duly authorized by all necessary corporate action on the part of each
Collaborator and the Agreement is binding and enforceable in accordance
with its terms;
(d) the execution, delivery and performance of this Agreement by such
party (i) does not conflict with, or constitute a breach or default under its
Certificate of Incorporation, bylaws, or any law, order, judgment or
governmental rule or regulation applicable to it, and (ii) does not conflict
with, or constitute a breach or default under or require any consent or
approval not obtained under, any provision of any material agreement,
contract, commitment or instrument to which it is a party;
(e) to its knowledge, it owns all patents, know-how and other
intellectual property rights included as of the Effective Date in its license
to the other Collaborator under Section 5.1 hereof, except for rights
licensed from or granted to third parties under the agreements listed on
SCHEDULE I hereof;
(f) to its knowledge, it is not required to obtain the consent or
approval of any third party to perform its obligations under this Agreement,
or to license or transfer such rights to the other Collaborator or to the JV
as contemplated under this Agreement; and
(g) in the case of Chiron, to its knowledge and except as disclosed
to Cephalon in writing, it owns all patents, knowhow and other intellectual
property rights required for use in the manufacture of the Products, except
for the rights specified on SCHEDULE I hereto, which are licensed by
Chiron from the third parties specified therein, and it has not received any
notice from a third party indicating that the manufacture of Products by
Chiron would infringe any intellectual property rights of any third party.
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SECTION 13.2 NO INCONSISTENT AGREEMENTS. Neither Collaborator shall
enter into any oral or written agreement after the date hereof that would be
inconsistent with its obligations under this Agreement or deprive the other
Collaborator of the benefits of the Collaboration in any substantial respect.
ARTICLE 14 -- DISCLAIMER, INDEMNIFICATION AND INSURANCE
SECTION 14.1 NO WARRANTY. EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 8
HEREOF, NEITHER COLLABORATOR MAKES ANY EXPRESS OR IMPLIED WARRANTIES,
STATUTORY OR OTHERWISE, CONCERNING THE PRODUCTS OR THE TECHNOLOGY LICENSED BY
IT TO THE OTHER COLLABORATOR OR TO THE JV, NOR DOES THE JV MAKES ANY EXPRESS
OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE, CONCERNING THE JV TECHNOLOGY,
THE PRODUCTS OR ANY INFORMATION LICENSED TO A COLLABORATOR UNDER THIS
AGREEMENT. WITHOUT LIMITING THE FOREGOING, NEITHER COLLABORATOR NOR THE JV
MAKES ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE, QUALITY OR USEFULNESS OF THE JV TECHNOLOGY
OR THE PRODUCTS.
SECTION 14.2 DEFENSE OF CLAIMS IN TERRITORY. Except as provided in
Article 9 hereof, each Collaborator and the JV shall be responsible for
defending itself against any liabilities, losses, costs, damages and expenses
(including reasonable attorneys' fees and costs) (collectively,
"Liabilities") resulting from a claim asserted by a third party arising out
of the manufacture, marketing, sale or use of a Product in the Territory,
including, without limitation, any claim in the nature of product liability
(whether under theories of strict liability, negligence, breach of warranty
or otherwise). If any such claim is asserted against both Collaborators
and/or the JV, the Management Committee shall control the defense of the
claim.
SECTION 14.3 COSTS AND EXPENSES.
(a) MAJOR MARKETS. Except as provided in Article 9 hereof, the
Costs (including any judgments or monetary damages awarded in an action)
incurred by the Collaborators or the JV in defending against any claim
described in Section 14.2 shall be an Allowable Expense to the extent
attributable to the Products in the Major Markets, unless the claim is caused
by: (i) the breach by the Collaborator or the JV of any covenant,
representation or warranty contained in this Agreement, or (ii) any act or
omission constituting gross negligence or willful misconduct by the
Collaborator or the JV in the development, manufacturing, labelling,
promotion, marketing or sale of a Product or any other activity conducted by
it under this Agreement (each, an "Excluded Liability").
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(b) ROYALTY TERRITORY. Except as provided in Article 9 hereof,
the Costs (including any judgments or monetary damages awarded in an action)
incurred by the Collaborators or the JV in defending against any claim
described in Section 14.2 shall be borne by the defending party (and shall
not be an Allowable Expense) to the extent attributable to the Products in
the Royalty Territory, unless the claim constitutes an Excluded Liability of
the other Collaborator, in which case the defending party may seek indemnity
from the other Collaborator under Section 14.4 hereof.
SECTION 14.4 INDEMNITY FOR EXCLUDED LIABILITIES. Each Collaborator
and the JV (as such, an "Indemnifying Party") shall indemnify, defend and
hold harmless the other Collaborator and the JV and its and their employees,
officers, directors and agents (as such, an "Indemnified Party") from and
against any Liabilities which the Indemnified Party may incur, suffer or be
required to pay resulting from or arising in connection with (i) any Excluded
Liability of the Indemnifying Party, (ii) any breach by the Indemnifying
Party of any agreement listed on SCHEDULE I to which it or an Affiliate is a
party, or (iii) the successful enforcement by an Indemnified Party of any of
the foregoing.
SECTION 14.5 PROCEDURES FOR INDEMNIFICATION. The obligations of the
Indemnifying Party under this Article 14 are conditioned upon the delivery of
written notice to the Indemnifying Party of any potential Liability, promptly
after the Indemnified Party becomes aware of such potential Liability. The
Indemnifying Party shall have the right to assume the defense of any suit or
claim related to the Liability if it has assumed responsibility for the
Liability in writing. If the Indemnifying Party defends the suit or claim,
the Indemnified Party may participate in (but not control) the defense
thereof, at its sole cost and expense (which shall not be an Allowable
Expense).
SECTION 14.6 SETTLEMENTS, ETC. Neither Collaborator may settle a
claim or action under this Article 14 without the consent of the other
Collaborator, if such settlement would impose any monetary obligation on the
JV or the other Collaborator or require the JV or the other Collaborator to
submit to an injunction or otherwise limit the other party's rights under
this Agreement.
SECTION 14.7 LIMITATION OF LIABILITY. With respect to any claim by
one party against the other arising out of the performance or failure of
performance of the other party under this Agreement, the liability of one
party to the other party for such breach shall be limited under this
Agreement or otherwise at law or equity to direct damages only; in no event
shall a party be liable to the other party for indirect, incidental or
consequential damages including, without limitation, lost profits.
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SECTION 14.8 INSURANCE. The Management Committee shall determine from time
to time the types and amount of insurance coverage, if any, to be maintained
by the JV and by each Collaborator to insure against the activities of the
Collaborators and the Collaboration. The Costs incurred by a Collaborator in
maintaining any insurance policy at the direction of the Management Committee
shall be an Allowable Expense to the extent authorized by the Management
Committee as attributable to its activities with respect to Products in the
Major Markets and otherwise shall be the responsibility of the Collaborator.
ARTICLE 15 - DISPUTE RESOLUTION
SECTION 15.1 DISPUTE RESOLUTION. If any dispute arises under this
Agreement which can not be resolved expeditiously by the Management Committee
after due consideration, the matter shall be submitted to the Chairman of
Chiron and the Chief Executive Officer of Cephalon for resolution. If the two
executives can not resolve the dispute to their mutual satisfaction within
thirty (30) days, the dispute shall be referred to arbitration under Section
15.2 below.
SECTION 15.2 ARBITRATION.
(a) Except as provided in subsection (d) hereof, all disputes arising
between Cephalon and Chiron under this Agreement that have not been resolved
pursuant to Section 15.1 shall be settled by arbitration conducted in the
English language in accordance with the procedures of the Commercial Rules of
the American Arbitration Association, before a panel of three arbitrators,
one of whom is selected by Cephalon, one of whom is selected by Chiron, and
one of whom is selected by Cephalon and Chiron (or by the other two
arbitrators, if the parties cannot agree). The parties shall request an
expedited hearing for any dispute related to a nonpayment hereunder, and
shall otherwise cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable. Any arbitration
proceeding instituted by a Collaborator shall be brought in the principal
place of business of the defending party.
(b) Any award rendered by the arbitrators shall be binding upon the
parties hereto and shall be final, subject to review by a court of competent
jurisdiction under the statutory standard of review applicable to
arbitrations. Judgment upon the award may be entered in any court of record
of competent jurisdiction.
(c) Each party shall pay its own expenses of arbitration and the
expenses of the arbitrators shall be equally shared unless otherwise ordered
by the arbitrators.
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(d) Notwithstanding anything contained in this Section 15.2, each party
shall have the right to institute judicial proceedings against the other
party or anyone acting by, through or under such other party in order to (i)
enforce the instituting party's rights hereunder through specific
performance, injunction or similar equitable relief, or (ii) enforce its
rights under Article 12 hereof.
ARTICLE 16 - TERM AND TERMINATION
SECTION 16.1 TERM. This Agreement shall commence as of the Effective Date
and shall continue until the last sale of a Product in the Territory pursuant
to Article 4 or Article 7, unless terminated earlier in accordance with this
Article 16.
SECTION 16.2 TERMINATION OF AGREEMENT IN FULL.
(a) TERMINATION FOR COMMERCIAL FAILURE. This Agreement may be
terminated in full by either Collaborator, upon 180 calendar days written
notice to the other Collaborator, if in the good faith conclusion of the
terminating Collaborator, there is no reasonable, objective basis for further
development of any Product within the Field. The terminated Collaborator
shall, at its election, be a "Continuing Licensee" for purposes of Section
16.5(b) hereof.
(b) TERMINATION UPON BREACH. This Agreement may be terminated in full
by either Collaborator upon material breach by the other Collaborator of any
covenant, representation or warranty of this Agreement such that the
non-breaching party is denied in a substantial respect the economic benefit
of this Agreement and such breach is not substantially cured within sixty
(60) calendar days after the non-breaching Collaborator gives the breaching
Collaborator written notice of such breach. The terminating Collaborator
shall, at its election, be a "Continuing Licensee" for purposes of Section
16.5(b) hereof.
(c) TERMINATION BY MUTUAL AGREEMENT. This Agreement may be terminated
in whole or in part at any time by mutual written agreement of the
Collaborators.
SECTION 16.3 ACTIONS UPON CHANGE OF CONTROL. If either Collaborator
experiences one or more of the following events (a "Change of Control"):
(i) any person or group (other than a Collaborator or a group
including a Collaborator) becomes after the date hereof (whether by
tender or exchange offer or otherwise) the beneficial owner, directly or
indirectly, of securities of the Collaborator representing 50% or more
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of the combined voting power of such Collaborator's then outstanding
voting securities;
(ii) the membership of the Collaborator's Board of Directors
changes as a result of one or more contested elections within a two
year period such that individuals who were members of such Board prior
to any such contested election no longer make up a majority of such
Board; or
(iii) stockholders of the Collaborator approve a merger, plan of
consolidation, the sale or disposition of all or substantially all of
such Collaborator's assets, or a plan of partial or complete liquidation
of such Collaborator;
then the Collaborator experiencing the Change of Control shall promptly
furnish the other Collaborator with written notice describing such event
(reasonably in advance of such event, if possible, but in no event later than
ten (10) days after such event).
SECTION 16.4 PARTIAL TERMINATION IN ROYALTY TERRITORY. Chiron may
terminate its rights in any country in the Royalty Territory, in whole or as
to any Product, without cause, upon 180 days written notice to the JV.
SECTION 16.5 RIGHTS AND OBLIGATIONS ON TERMINATION.
(a) BALANCING. Upon termination of this Agreement pursuant to Section
16.2, the Collaborators shall balance any remaining deficiency in the equal
funding of Allowable Expenses between the parties in a transaction (such as a
purchase of assets) that is mutually acceptable to the parties and, at the
option of the Collaborator balancing the deficiency, does not result in a
current charge to the earnings of such Collaborator.
(b) RIGHTS OF A CONTINUING LICENSEE.
(I) SURVIVING LICENSES. A Collaborator who is a Continuing
Licensee may elect to have the applicable licenses granted to it or to
the JV under Article 5 convert into an exclusive license to the
Continuing Licensee, which shall survive termination of this Agreement
until the Continuing Licensee ceases to develop or commercialize
Products. The other Collaborator shall transfer to the Continuing
Licensee, upon request, all Confidential Information necessary or
useful for the manufacture, use or sale of the applicable Product in
its possession. In addition, the Continuing Licensee may elect to cause
the other Collaborator and the JV to transfer all Regulatory Approvals,
Pricing Approvals, marketing approvals, customer lists, contracts,
information or any other right that is necessary or useful for the
development, manufacture, use,
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marketing or sale of the applicable Product or Products. The other
Collaborator shall take such steps as are reasonably required to transfer all
such approvals, contracts, information and rights to enable the Continuing
Licensee to assume the business of developing, marketing and selling the
applicable Product or Products.
(ii) SUPPLY OF PRODUCTS. If the Continuing Licensee is not supplying
any of the applicable Product or Products under this Agreement, it may either
require the other party to continue to supply the applicable Product or
Products, upon the terms and for the period described below, or cause the
other party to transfer the required technology to the Continuing Licensee.
If a Continuing Licensee elects to require the other party to continue
to supply Products, it shall pay the supplying party, on a quarterly basis,
an amount equal to [CONFIDENTIAL TREATMENT REQUESTED] for all Products
continued to be supplied hereunder. The supplying party shall only be
obligated to supply Products for a reasonable transition period, which period
shall not exceed [CONFIDENTIAL TREATMENT REQUESTED] from the date that the
Collaborator elects to become a Continuing Licensee. The Continuing Licensee
shall use all commercially reasonable efforts to identify a replacement
manufacturer or establish a manufacturing facility for the Products in a
timely manner. The supplying party shall take such steps as are reasonably
required to enable the Continuing Licensee to assume the business of producing
the Products. If for any reason the supplying party is not legally permitted
to transfer the necessary technology or rights to the Continuing Licensee for
these purposes, the supplying party will continue to provide the applicable
Product or Products under this Agreement or to otherwise make available to the
Continuing Licensee the benefits of this Section 16.4, pursuant to
commercially reasonable terms to be mutually agreed upon by the parties. Any
amounts owed by the Continuing Licensee for Product supply under this
Agreement shall be set off against the amount, if any, of unbalanced
Allowable Expenses of the Continuing Licensee existing as of the effective
termination date of this Agreement.
If a Continuing Licensee elects to cause a transfer of the required
technology to manufacture Products, the transferring party shall take such
steps as are reasonably required to enable the Continuing Licensee to
manufacture (or have manufactured) the Products, including, without
limitation, by providing to the Continuing Licensee: (x) all manufacturing
information and descriptions of the applicable technology and processes in
sufficient detail to permit the manufacture of the Products in commercial
quantities in an efficient manner; (y) samples of all organisms or
other biological material used in producing such Products; and (z) training
of personnel as may be
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necessary to permit the manufacture of the Products. The Continuing Licensee
shall pay the transferring party a royalty on sales of Products at a rate to
be negotiated by the parties in good faith at the time of such license, but
shall not be more than [CONFIDENTIAL TREATMENT REQUESTED] of the royalties
payable by Chiron under Article 8 hereof.
(c) NON-COMPETE. A Collaborator that is not a Continuing Licensee shall
refrain from selling Products in the Field in the Territory and shall
refrain from participating, directly or indirectly, in any business,
partnership, collaboration, license arrangement or other enterprise engaged
in the business of the development, manufacture, marketing, use, distribution
or sale of Products in the Field and in the Territory for a period of five
(5) years after the termination date.
(d) ROYALTY TERRITORY.
(i) Cephalon shall have the right to assume Chiron's rights and
obligations as to any country or Product in the Royalty Territory upon
any termination of such country or Product under Section 16.4. However,
no such assumption by Cephalon shall operate as waiver of or otherwise
extinguish Chiron's obligations for liabilities accrued prior to the
termination date. Chiron shall cooperate with Cephalon to allow Cephalon
to conduct its business under this Agreement in a timely manner, including
taking such steps as are reasonably required to allow Cephalon to obtain
supplies of Products for purposes of this Agreement.
(ii) Upon termination of a country or Product in the Royalty Territory
by Chiron pursuant to Section 16.4, Chiron shall promptly deliver to the
JV or Cephalon, as applicable, all promotional materials and other data,
information, test results, marketing information, customer lists and
records, distributor lists and records, and any other information under
Chiron's control that is related to the manufacture, marketing or sale of
the applicable Product or Products in the applicable country or countries
within the Royalty Territory. Chiron also shall promptly transfer any
Regulatory Approvals and Pricing Approvals for the applicable Product or
Products in the applicable country or countries in the Royalty Territory
to the JV or Cephalon, as applicable, to the extent permitted by law.
(iii) Chiron may sell remaining inventory and finished goods for a
Product or Products as to which Chiron has terminated pursuant to Section
16.4 for a period not to exceed six (6) months, subject to the royalty
obligations and other provisions of this Agreement. Any inventory of
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Product remaining at the end of such period shall be transferred
pursuant to the instructions of the JV or Cephalon, the costs of which
shall be borne by the JV or Cephalon, as applicable.
SECTION 16.6 TERMINATION UPON CCP TRANSFER. If for any reason Cephalon,
after consultation with Chiron, either elects not to exercise its right to
purchase the limited partnership interests of CCP under the Purchase
Agreement included in the Cephalon Agreements, or Cephalon's rights under
this Agreement are transferred to CCP for any other reason (including breach
under the terms of the applicable Cephalon Agreements), Cephalon may transfer
its rights under this Agreement to CCP, unless either CCP or Chiron elects to
terminate this Agreement, upon 90 days written notice of termination to the
other. In the event of such termination, any license to a Continuing Licensee
under Section 16.5 hereof also shall terminate, the Chiron Technology shall
revert to Chiron and the Cephalon Technology shall revert to CCP, subject to
the perpetual licenses under Section 5.1 hereof.
SECTION 16.7 EFFECTIVE DATE OF TERMINATION. Unless otherwise provided
herein, a termination notice pursuant to this Article 16 shall be effective
on the date of delivery of written notice of termination to the other party
hereto.
SECTION 16.8 SURVIVAL. Neither Collaborator nor the JV shall be relieved
of its obligations to pay any sums of money due or payable or accrued under
this Agreement as of the date of such termination. All accounts between the
Collaborators and the JV shall be settled in full within ninety (90) days
following the termination of this Agreement under Section 16.2. Article 12,
Section 16.5 and this Section 16.7 shall survive the termination of this
Agreement. In addition, any provision required to interpret and enforce the
parties rights and obligations under this Agreement also shall survive to the
extent required for the full observation and performance of this Agreement in
accordance with its terms.
SECTION 16.9 REMEDIES NOT EXCLUSIVE. Termination by either Collaborator
pursuant to this Article 16 shall not prejudice any other remedy that such
party might have in law or equity with the exception, however, of claiming
compensation for loss or damages resulting from such termination.
ARTICLE 17 - MISCELLANEOUS
SECTION 17.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire understanding of the Collaborators with respect to the subject matter
hereof and supersedes all previous verbal and written agreements,
representations and warranties.
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This Agreement may be released, waived or modified only by written agreement
signed by the party against whom enforcement of any release, waiver,
modification, or other change is sought.
SECTION 17.2 REFERENCES TO CIBA. All references to CIBA in this
Agreement shall be effective for so long as CIBA has the right of first
refusal to sell or promote products containing IGF-1 under the CIBA
Agreement. If at any time CIBA ceases to have such right, all references to
CIBA's rights and obligations under this Agreement shall be of no further
force and effect.
SECTION 17.3 FORCE MAJEURE. Failure of any party to perform its
obligations under this Agreement (except the obligation to make payments)
shall not subject such party to any liability or place them in breach of any
term or condition of this Agreement to the other party if such failure is
caused by any cause beyond the reasonable control of such nonperforming
party, including without limitation acts of God, fire, explosion, flood,
drought, war, riot, sabotage, embargo, strikes or other labor trouble,
failure in whole or in part of suppliers to deliver on schedule materials,
equipment or machinery, interruption of or delay in transportation, a
national health emergency or compliance with any order or regulation of any
government entity acting with color of right.
SECTION 17.4 NO INTERFERENCE WITH EXISTING BUSINESSES. Each of Chiron
and Cephalon acknowledges that the other party is engaged in the business of
developing, manufacturing, marketing and selling products, including Products
outside the Field and products other than Products within the Field. Nothing
in this Agreement shall prevent either Collaborator from continuing to carry
on its business or to enter into agreements with third parties except as
expressly provided in Sections 4.6, 5.5 and 16.5(c) hereof.
SECTION 17.5 COMPLIANCE WITH LAW. Each Collaborator shall comply with
all laws, rules and regulations which are material to the conduct of its
activities under this Agreement.
SECTION 17.6 WAIVER. The failure of a party to enforce any breach or
provision of this Agreement shall not constitute a continuing waiver of such
breach or provision and such party may at any time thereafter act upon or
enforce such breach or provision of this Agreement. Any waiver of breach
executed by either party shall affect only the specific breach and shall not
operate as a waiver of any subsequent or preceding breach.
SECTION 17.7 NO ASSIGNMENT. No Collaborator may sell, assign, pledge
or otherwise dispose of all or any portion of its interest in the
Collaboration or right thereto without the prior written consent of the other
Collaborator, except that no such consent is required for any transfer to an
Affiliate or to a
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successor to substantially all of the Collaborator's business. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon
the Collaborators and their respective permitted successors and assigns.
SECTION 17.8 SEVERABILITY. If any clause or provisions of this
Agreement is declared invalid or unenforceable by a court of competent
jurisdiction, such provision shall be severed and the remaining provisions of
the Agreement shall continue in full force and effect. The parties shall use
their best efforts to agree upon a valid and enforceable provision as a
substitute for the severed provision, taking into account the intent of this
Agreement.
SECTION 17.9 NOTICES. Any notice, request or other communication
required to be given pursuant to the provisions of this Agreement shall be in
writing and shall be deemed to be given when delivered in person or five days
after being deposited in the United States mail, postage prepaid, certified,
return receipt requested, or by overnight courier (return receipt requested),
to the parties addressed as follows:
(a) If to Chiron to:
Chiron Corporation
4560 Horton Street
Emeryville, California 94608
Attn: Office of the President
Tel: (510) 655-8730
FAX: (510) 654-5360
With a copy to:
Law Department
Chiron Corporation
Tel: (510) 655-8730
FAX: (510) 654-5360
(b) If to Cephalon, to
Cephalon, Inc.
145 Brandywine Parkway
West Chester, PA 19380
Attn: President
Tel: (215) 344-0200
FAX: (215) 344-7253
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With a copy to:
Barbara S. Schilberg
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19013
Tel: (215) 963-5000
FAX: (215) 963-5299
Either party may change its address or its FAX number by giving the other
party written notice, delivered in accordance with this Section.
SECTION 17.10 PRONOUNS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural, as
the context may require.
SECTION 17.11 FURTHER INSTRUMENTS. Each Collaborator shall execute
and deliver such further instruments and do such further reasonable acts and
things as reasonably may be required to carry out the intent and purpose of
this Agreement.
SECTION 17.12 GOVERNING LAW. The validity, performance, construction,
and effect of this Agreement will be governed by the laws of the State of
Delaware, without giving effect to conflict of law rules.
SECTION 17.13 COUNTERPARTS. This Agreement shall become binding when
any one or more counterparts hereof, individually or taken together, bears
the signature of each of the parties hereto. This Agreement may be executed
in any number of counterparts, each of which shall be an original as against
the party whose signature appears thereon, but all of which taken together
shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its duly authorized officer as of the date first above written.
CHIRON CORPORATION CEPHALON, INC.
By: /s/ William J. Rutter, Ph.D. By: /s/ Frank Baldino, Jr.
------------------------------- --------------------------------
Name: William J. Rutter, Ph.D. Name: Frank Baldino, Jr.
Title: Chairman Title: President and Chief
Executive Officer
<PAGE>
SCHEDULE I
THIRD PARTY AGREEMENTS
[CONFIDENTIAL TREATMENT REQUESTED]
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[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE II
FIELD EXCLUSION
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE III
SOD TECHNOLOGY
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE IV
THIRD PARTY ROYALTIES
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE V
DEVELOPMENT EXPENSES FOR TRANSITION PERIOD
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE VI
ALLOWABLE EXPENSES AND ACCOUNTING PRINCIPLES
To be prepared in accordance with Section 2.3(c).
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SCHEDULE VII
PREFERRED INDICATIONS OF CHIRON
[CONFIDENTIAL TREATMENT REQUESTED]
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SCHEDULE VIII
CEPHALON NONFIELD INDICATIONS
[CONFIDENTIAL TREATMENT REQUESTED]
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Exhibit 10.206
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
[Letterhead]
January 13, 1995
VIA FEDERAL EXPRESS
Chiron Corporation
4560 Horton Street
Emeryville, CA 94608
Attention: William H. Green, Esq.
Re: COLLABORATION AGREEMENT
Gentlemen:
This letter is intended to confirm certain mutual understandings in
connection with the Agreement between Cephalon, Inc. and Chiron Corporation
dated January 7, 1994 (the "Agreement") related to the joint development and
commercialization of IGF-1 and other specified compounds. All capitalized
terms not otherwise defined herein are used as defined in the Agreement.
1. The 1994 budget of Allowable Expenses by Cephalon for the use of IGF-1
in the treatment of ALS has been approved by the Management Committee
in the form attached as EXHIBIT A to this letter.
2. The 1994 budget of [CONFIDENTIAL TREATMENT REQUESTED] of Allowable
Expenses by Chiron for IGF-1 has been approved by the Management
Committee.
3. Section 6.1 of the Agreement is amended to read in its entirety as
follows:
"SECTION 6.1 SHARING OF OPERATING PROFITS AND LOSSES. The
Operating Profits and Operating Losses from the Major Markets and
the Royalty Territory shall be shared equally by Cephalon and
Chiron, except (i) for the special allocation described in
Section 6.2(a) hereof, and (ii) Cephalon shall receive from the JV
a royalty of [CONFIDENTIAL TREATMENT REQUESTED] in the Major Markets
in Europe (i.e., the EC and EFTA countries) of a Product containing
IGF-1 for use in treating ALS, before Operating Profits and
Operating Losses are calculated."
<PAGE>
Chiron Corporation
January 13, 1995
Page 2
4. Cephalon will be responsible for the Costs related to the IGF-1 program
that were incurred by Cephalon in 1994, as specified on EXHIBIT B
hereto, and for any other Costs related to the European ALS study that
are designated as non-Allowable Expenses in the 1995 budget to be
approved by the Management Committee (all of such Costs being referred
to as the ""Reimbursable Costs"). However, Cephalon shall be entitled
to make draws under the Line of Credit Note to fund one-half of the
Reimbursable Costs, not to exceed $10 million. The Line of Credit Note
is hereby amended to the extent required to permit such draws and is
further amended to extend the Maturity Date of the Note by one year, to
January 6, 2000.
5. Chiron shall have no right to receive any of the Operating Profits from
Net Sales in the Major Markets in Europe of a Product containing IGF-1
for use in treating ALS, unless it elects to repurchase its rights by
reimbursing Cephalon for the Reimbursable Costs, by written notice to
Cephalon delivered at any time before the earlier of (i) filing by
Cephalon of the first request for regulatory approval to market a
product containing IGF-1 in a Major Market, or (ii) the Maturity Date
of the Line of Credit Note. To repurchase such rights, Chiron shall
reimburse Cephalon for 50% of the Reimbursable Costs, plus interest
accrued at [CONFIDENTIAL TREATMENT REQUESTED], compounded annually from
the date the Reimbursable Cost was incurred. The reimbursement shall
be paid out of Chiron's share of Operating Profits in the Territory from
Net Sales of a Product containing IGF-1 for use in treating ALS. All of
Chiron's share of Operating Profits in the Territory will be subject to
the reimbursement, on a dollar-for-dollar basis, until the Reimbursable
Costs, plus accrued interest, have been paid in full. All such
reimbursements shall be applied first, to pay accrued interest and second,
to pay the principal of the Reimbursed Costs. Chiron may at any time
prepay the Reimbursable Costs, plus interest accrued to the date of
prepayment.
If Chiron elects to reimburse the Reimbursable Costs, Cephalon shall
repay the outstanding principal of the Line of Credit Note related to
the draws used to fund the Reimbursable Costs in an amount equal to, and
concurrently with, each payment by Chiron of Reimbursable Costs. If
Chiron gives written notice of its election to repurchase such rights,
the Maturity Date of the Line of Credit Note shall automatically be
extended to the extent required to permit the payment by Cephalon of
such principal of the Note concurrently with reimbursement by Chiron of
the Reimbursable Costs.
<PAGE>
Chiron Corporation
January 13, 1995
Page 3
If the foregoing accurately reflects your understanding as to these
matters, please indicate your agreement in the space provided below.
Very truly yours,
/s/ Bruce A. Peacock
Bruce A. Peacock
Executive Vice President &
Chief Operating Officer
Accepted and agreed to by:
CHIRON CORPORATION
By: /s/ William G. Green
----------------
cc: Frank Baldino, Jr. Ph.D.
Barbara S. Schiberg, Esq.
<PAGE>
EXHIBIT A
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
EXHIBIT B
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>
[CONFIDENTIAL TREATMENT REQUESTED]
[Certain information has been omitted herein pursuant to a request for
confidential treatment pursuant to Rule 24b-2.]
Exhibit 10.85
May 23, 1995
VIA FAX
Chiron Corporation
4560 Horton Street
Emeryville, CA 94606
Attention: William Green, Esq.
Re: AMENDMENT TO AGREEMENT
Gentlemen:
This letter is to confirm our understanding as to certain matters under
the Agreement dated January 7, 1994 between Caphalon, Inc. and Chiron
Corporation, as amended (the "Agreement"). All terms not otherwise defined
herein are used as defined in the Agreement.
1. If Chiron is not for any reason manufacturing on behalf of the
Collaboration commercial supplies of a Product containing IGF-1, and Cephalon
is manufacturing the Product, Cephalon will receive [CONFIDENTIAL TREATMENT
REQUESTED] of the Operating Profits from the Major Markets and the Royalty
Territory, and Section 6.1 of the Agreement is hereby amended to add a new
clause (iii) after the word 'except', which states in its entirety as follows:
"(iii) if Chiron is not for any reason manufacturing on behalf of the
Collaboration commercial supplies of a Product containing IGF-1,
Cephalon will receive an additional [CONFIDENTIAL TREATMENT REQUESTED] of
the Operating Profits from the Major Markets and the Royalty Territory
attributable to Net Sales of any such Product that was manufactured by
Cephalon (the 'Manufacturing Premium') (i.e., for a total share of
[CONFIDENTIAL TREATMENT REQUESTED] of such Operating Profits)."
2. The payment by the Collaboration of Manufacturing Premium does not
operate as a waiver of any party's rights or obligations under the Agreement,
including Chiron's obligations to manufacture Products in accordance with the
terms of the Agreement.
3. Chiron has elected not to participate in Cephalon's option to
buy-down the royalty rate and license fees payable under a License Agreement
dated March 6, 1992, as amended, between Cephalon and The Salk Institute of
Biotechnology/Industrial Associates, Inc. ("SIBIA"). Even if Cephalon
exercises its option to buy-down the SIBIA compensation, the Collaboration
will nevertheless continue to be responsible for the full amount of the
compensation (royalties and license fees) owed to SIBIA under the SIBIA
License as in effect before such buy-down, to the extent such compensation
results from the activities of the Collaboration. The payment of SIBIA
<PAGE>
Chiron Corporation
May 23, 1995
Page 2
compensation will be made to Cephalon, who will remit the appropriate amount
to SIBIA. As an illustration, assuming that before the buy-down the royalty
owed to SIBIA on sales of a Product in the Field is [CONFIDENTIAL TREATMENT
REQUESTED] and that Cephalon buys down [CONFIDENTIAL TREATMENT REQUESTED] of
the SIBIA royalty, the Collaboration will pay Cephalon the [CONFIDENTIAL
TREATMENT REQUESTED] royalty and Cephalon will remit the [CONFIDENTIAL
TREATMENT REQUESTED] royalty to SIBIA.
If the above accurately describes our understanding, please indicate your
agreement in the space provided below.
Sincerely yours,
/s/ Bruce A. Peacock
Bruce A. Peacock
Executive Vice President and
Chief Operating Officer
Acknowledged and agreed to by:
CHIRON CORPORATION
By: /s/ William G. Green
----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET DATED MARCH 31,
1999 AND UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999<F5>
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999<F5>
<CASH> 69,146
<SECURITIES> 1,368,279<F1>
<RECEIVABLES> 184,032
<ALLOWANCES> 0
<INVENTORY> 80,842
<CURRENT-ASSETS> 1,115,743
<PP&E> 526,089
<DEPRECIATION> 208,588
<TOTAL-ASSETS> 2,373,340
<CURRENT-LIABILITIES> 385,470
<BONDS> 339,259<F2>
0
0
<COMMON> 1,815
<OTHER-SE> 1,570,453<F3>
<TOTAL-LIABILITY-AND-EQUITY> 2,373,340
<SALES> 92,967
<TOTAL-REVENUES> 175,560
<CGS> 44,073
<TOTAL-COSTS> 44,073
<OTHER-EXPENSES> 75,683<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,071
<INCOME-PRETAX> 31,748
<INCOME-TAX> 8,010
<INCOME-CONTINUING> 23,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,738
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
<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, RESTRUCTURING AND REORGANIZATION
CHARGES AND OTHER OPERATING EXPENSES.
<F5>DURING THE FIRST QUARTER OF 1999, THE COMPANY CHANGED ITS FISCAL YEAR FROM A
52 OR 53-WEEK YEAR TO A CALENDAR YEAR ENDING ON DECEMBER 31. AS A RESULT OF
THIS CHANGE THE FIRST QUARTER OF 1999 IS A SHORT PERIOD BEGINNING ON
JANUARY 4, 1999.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS DATED MARCH 31 AND
JUNE 30, 1998 AND UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE AND SIX MONTHS ENDED MARCH 31 AND JUNE 30, 1998, RESPECTIVELY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998<F5> DEC-31-1998<F5>
<PERIOD-START> JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998<F5> JUN-30-1998<F5>
<CASH> 177,590 158,120
<SECURITIES> 270,727<F1> 254,859<F1>
<RECEIVABLES> 295,532 328,132
<ALLOWANCES> 0 0
<INVENTORY> 133,224 170,231
<CURRENT-ASSETS> 863,843 848,427
<PP&E> 724,254 765,364
<DEPRECIATION> 256,123 283,432
<TOTAL-ASSETS> 1,755,401 1,802,840
<CURRENT-LIABILITIES> 366,121 378,088
<BONDS> 400,072<F2> 402,312<F2>
0 0
0 0
<COMMON> 1,771 1,775
<OTHER-SE> 964,056<F3> 987,615<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,755,401 1,802,840
<SALES> 69,220 165,278
<TOTAL-REVENUES> 133,287 296,177
<CGS> 28,077 71,310
<TOTAL-COSTS> 28,077 71,310
<OTHER-EXPENSES> 72,111<F4> 143,426<F4>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,580 12,629
<INCOME-PRETAX> 11,407 29,327
<INCOME-TAX> 3,865 1,683
<INCOME-CONTINUING> 7,542 27,644
<DISCONTINUED> 46,939<F8> 52,224<F8>
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 54,481 79,868
<EPS-PRIMARY> 0.31<F6> 0.45<F6>
<EPS-DILUTED> 0.30<F7> 0.44<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, ACCUMULATED
OTHER COMPREHENSIVE LOSS AND NOTES RECEIVABLE FROM STOCK SALES.
<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 JAN-03-1999. ACTUAL INTERIM PERIOD ENDS WERE
MAR-29-1998 AND JUNE 28, 1998. FOR PRESENTATION PURPOSES, DATES USED IN THE
CONDENSED 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 FOR THE THREE MONTHS ENDED MAR-31-1998 AND SIX MONTHS
ENDED JUN-30-1998 WAS $0.04 AND $0.16, RESPECTIVELY. BASIC INCOME PER SHARE FROM
DISCONTINUED OPERATIONS FOR THE THREE MONTHS ENDED MAR-31-1998 AND SIX MONTHS
ENDED JUN-30-1998 WERE $0.27 AND $0.29, RESPECTIVELY.
<F7>REPRESENTS DILUTED NET INCOME PER SHARE. DILUTED INCOME PER SHARE FROM
CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED MAR-31-1998 AND SIX MONTHS
ENDED JUN-30-1998 WAS $0.04 AND $0.15, RESPECTIVELY. DILUTED INCOME PER SHARE
FROM DISCONTINUED OPERATIONS FOR THE THREE MONTHS ENDED MAR-31-1998 AND SIX
MONTHS ENDED JUN-30-1998 WERE $0.26 AND $0.29, RESPECTIVELY.
<F8>ON NOVEMBER 30, 1998, CHIRON CORPORATION COMPLETED THE SALE OF ITS IN VITRO
DIAGNOSTICS BUSINESS, CHIRON DIAGNOSTICS CORPORATION. THIS SCHEDULE FOR THE
THREE MONTHS ENDED MAR-31-1998 AND SIX MONTHS ENDED JUN-30-1998 HAS BEEN
RESTATED TO REFLECT THE RESULTS OF CHIRON DIAGNOSTICS CORPORATION AS
DISCONTINUED OPERATIONS.
</FN>
</TABLE>