<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CHIRON CORPORATION
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
[LOGO]
April 1, 1999
To the Stockholders of
CHIRON CORPORATION
You are cordially invited to attend the Annual Meeting of Stockholders of
Chiron Corporation on May 13, 1999, at 10:00 a.m., which will be held in the
auditorium at our Emeryville headquarters, 1450 53rd Street, Emeryville,
California 94608.
At this year's meeting you will be asked to elect five directors and to
ratify the selection of the independent auditors. The accompanying Notice of
Annual Meeting and Proxy Statement describe these proposals. We urge you to read
this information carefully.
Also included in this package is Chiron's 1998 Annual Report. The Annual
Report is in summary form, and contains selected financial data, our letter to
stockholders, and highlights of operations. You will find the Company's audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for 1998, which accompanies the Annual Report.
Whether or not you plan to attend the Annual Meeting, please sign, date and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so by giving notice and voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
/S/ SEAN P. LANCE
Sean P. Lance,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
CHIRON CORPORATION
4560 HORTON STREET
EMERYVILLE, CALIFORNIA 94608
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1999
TO THE STOCKHOLDERS OF CHIRON CORPORATION:
You are hereby notified that the Annual Meeting of Stockholders of Chiron
Corporation ("Chiron" or the "Company") will be held at 1450 53rd Street,
Emeryville, California, on Thursday, May 13, 1999, at 10:00 a.m., for the
following purposes:
1. To elect four directors to hold office until the Annual Meeting of
Stockholders in the year 2002 and one director to hold office until the
Annual Meeting of Stockholders in the year 2000;
2. To ratify the selection of KPMG LLP as independent auditors for the
fiscal year ending December 31, 1999; and
3. To transact such other business that may properly come before the
Annual Meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on March 19, 1999 will be
entitled to vote at the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE, AND
RETURN THE ENCLOSED PROXY IN THE REPLY ENVELOPE PROVIDED. The prompt return of
your proxy will assist us in preparing for the Annual Meeting. Even if you have
returned your proxy, you may still vote in person if you attend the Meeting.
Please note, however, that if your shares are held of record by a broker, bank
or other nominee and you wish to attend and vote at the meeting, you must obtain
from such broker, bank or other nominee a proxy issued in your name.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ WILLIAM G. GREEN
William G. Green,
SECRETARY
Emeryville, California
April 1, 1999
<PAGE>
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of CHIRON CORPORATION, a Delaware corporation
("Chiron" or the "Company"), for use at the Annual Meeting of Stockholders of
Chiron (the "Annual Meeting"), and at any continuation or adjournment thereof.
The Annual Meeting will be held on Thursday, May 13, 1999 at 10:00 a.m. in the
auditorium at the Company's Emeryville headquarters, 1450 53rd Street,
Emeryville, California 94608. These proxy materials were first mailed to
stockholders on or about April 1, 1999.
VOTING BY PROXY AND REVOCABILITY OF PROXIES
If you are unable to attend the Annual Meeting, you may vote by proxy. The
enclosed proxy is solicited by the Chiron Board of Directors and, when the proxy
card is returned properly completed, it will be voted as you direct on your
proxy card. You are urged to specify your choices on the enclosed proxy card. If
a proxy card is signed and returned without choices specified, in the absence of
contrary instructions, the shares of Chiron common stock ("Common Stock")
represented by such proxy will be voted "FOR" Proposals 1 and 2 and will be
voted in the proxy holders' discretion as to other matters that may properly
come before the Annual Meeting.
You may revoke or change your proxy at any time before it is exercised at
the Annual Meeting. To do this, send a written notice of revocation or another
signed proxy with a later date than appears on the proxy you wish to revoke to
the Secretary of Chiron, William G. Green, at the Company's principal executive
office. You also may revoke your proxy by giving notice and voting in person at
the Annual Meeting.
If your shares are held of record by a broker, bank or other nominee and you
wish to attend and vote at the Annual Meeting, you must obtain from such broker,
bank or other nominee a proxy issued in your name.
SOLICITATION
The Company will pay the cost of soliciting these proxies, including
printing, handling, and mailing of this Proxy Statement, the proxy and related
material furnished to stockholders. Copies of solicitation materials will be
furnished to banks, brokerage houses, custodians, nominees, and fiduciaries
holding shares of Common Stock in their names which are beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners for their costs of forwarding proxy material to
the beneficial owners. Certain officers, directors, and regular employees of
Chiron may solicit proxies by telephone, facsimile or in person. These persons
will receive no extra compensation for their services.
VOTING RIGHTS AND OUTSTANDING SHARES
The Company has one type of security entitled to vote at the Annual Meeting,
its Common Stock. If you were a stockholder of record of Common Stock at the
close of business on March 19, 1999, you may vote at the Annual Meeting. Each
share entitles you to one vote on each matter to come before the Annual
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Meeting. On March 19, 1999, there were 181,427,057 shares of Common Stock issued
and outstanding. The Certificate of Incorporation of the Company does not
provide for cumulative voting.
VOTING OF SHARES HELD BY NOVARTIS
The Company has a strategic alliance with Novartis AG ("Novartis"). As of
February 1, 1999, Novartis held shares representing approximately 44% of the
Company's outstanding Common Stock. A Governance Agreement dated as of November
20, 1994 between the Company and Novartis (the "Governance Agreement") contains
provisions relating to, among other things, the nomination of directors to the
Company's Board of Directors. Under the terms of the Governance Agreement,
Novartis is permitted to designate three candidates for nomination to the Board.
(The number of candidates Novartis is permitted to designate declines if it owns
less than 30% of the Company's outstanding Common Stock.) So long as the Board
has the required number of directors designated by it, Novartis is required to
be present for purposes of establishing a quorum at stockholder meetings
relating to the election of directors, and further is required to vote all of
its shares of Common Stock in favor of any nominee selected in accordance with
the provisions of the Governance Agreement. The Company believes that Novartis
will vote all of its shares in favor of each of the nominees named in Proposal
1.
For more on the Company's relationship with Novartis, see "Certain
Relationships and Related Transactions".
VOTING PROCEDURES
All votes will be tabulated by the inspector of elections appointed for the
Annual Meeting. The inspector of elections will separately tabulate affirmative
votes, negative votes, abstentions and broker non-votes. (Broker non-votes are
shares represented at the meeting, but with respect to which the authority to
vote on a particular proposal has been withheld.) Shares represented by proxies
that reflect abstentions or broker non-votes will be counted as shares that are
present and entitled to vote for purposes of determining a quorum. With respect
to the election of directors, abstentions and broker non-votes will be treated
as not voted. The five director nominees who receive the greatest number of
votes actually cast will be elected.
PROPOSAL 1
ELECTION OF DIRECTORS
The Governance Agreement between the Company and Novartis provides that the
Board of Directors of the Company (the "Board") will be comprised of 11
directors, and that the Nominating Committee of the Board will nominate three
management directors, including the two most senior executives of the Company
and a third employee or other person otherwise designated as a management
director (each, a "Management Director"), three persons designated by Novartis
(each, an "Investor Director") and the remaining directors who must meet certain
criteria demonstrating their independence from both Novartis and the Company
(each, an "Independent Director"). The number of Investor Directors that
Novartis is permitted to designate for nomination declines if its ownership
interest in the Company is less than 30 percent.
The Company's Restated Certificate of Incorporation, as amended, provides
that the Board of Directors will be divided into three classes, each class
consisting, as nearly as possible, of an equal number of directors. Directors
are elected for staggered three year terms.
There are four directors currently on the Board in the class whose term
expires in 1999: Mr. Coleman (an Independent Director), Dr. Herrling (an
Investor Director), Dr. Rutter (a Management Director) and Mr. Schuler (an
Independent Director). The Board of Directors has nominated each of these
directors for election to the Board. If elected at the Annual Meeting, each of
these nominees would serve until the
2
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Annual Meeting in the year 2002 and until his successor is elected and
qualified, or until such director's earlier death, resignation, or removal.
In addition, Dr. Krauer has announced his intention to resign from his
current position as Chairman of Novartis at Novartis' annual meeting of
stockholders in April 1999 and to resign from his position as a Director of the
Company at the Company's Annual Meeting. The Board of Directors has nominated
Raymund Breu for election to the Board to fill the position that will be vacated
by Dr. Krauer's resignation. If elected at the Annual Meeting, Dr. Breu would
serve until the Annual Meeting in the year 2000 and until his successor is
elected and qualified, or until his earlier death, resignation, or removal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
The persons named on the enclosed proxy (the "proxy holders") will vote for
election of the above-named nominees unless you have withheld authority for them
to do so on your proxy card. In the event that a nominee is unable to or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee named by the present Board of Directors to fill
the vacancy. As of the date of this Proxy Statement, the Board of Directors is
not aware of any nominee who is unable to or who will decline to serve as a
director.
Set forth below is biographical information for the nominees and for each
person whose term will continue after the Annual Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE ANNUAL MEETING OF
STOCKHOLDERS IN 2002
LEWIS W. COLEMAN, age 57, a director of the Company since 1991, is the Chief
Executive Officer of the Montgomery Division of NationsBanc Montgomery
Securities LLC. From 1997 to 1998, he was a Senior Managing Director,
Co-Director of Investment Banking and a member of the Executive Committee at
NationsBanc Montgomery Securities. Mr. Coleman held similar positions with
Montgomery Securities from 1995 until its merger with NationsBank in October
1997. Prior to joining Montgomery Securities, Mr. Coleman was Vice Chairman of
the Board of Directors and the Chief Financial Officer of BankAmerica Corp. from
February 1993 until December 1995. Mr. Coleman joined Bank of America in 1986 as
Executive Vice President and Chief Credit Officer, World Banking Group. He also
headed the Capital Markets Group and later served from 1990 to 1993 as Vice
Chairman of the Board and Head of the World Banking Group at Bank of America.
Before joining Bank of America, Mr. Coleman spent 10 years with Wells Fargo
Bank. Currently, Mr. Coleman also sits on the Board of Conservation
International, the San Francisco Symphony and the California Academy of
Sciences.
PAUL L. HERRLING, age 52, a director of the Company since 1997, is the Head
of Research at Novartis Pharma AG and a member of the Novartis Pharma Executive
Board. Previously, he was Head of Preclinical Research Basel and Vice President
and Deputy Member of the Board of Management, Sandoz Pharma Ltd., from 1992
through 1993, and Head of Corporate Research and Senior Vice President and
Member of the Board of Management for Sandoz Pharma Ltd. from 1994 through 1996.
WILLIAM J. RUTTER, age 70, is a co-founder of the Company and has served as
its Chairman of the Board since the Company's inception in 1981. In 1969, Dr.
Rutter joined the faculty of the University of California, San Francisco
("UCSF"), as Herzstein Professor, and served as the Chairman of the Department
of Biochemistry and Biophysics at UCSF from 1969 to 1982. From August 1983
through April 1989, in addition to his responsibilities at the Company, Dr.
Rutter was the Director of the Hormone Research Institute at UCSF. In May 1989,
Dr. Rutter became a full-time employee of the Company and vacated the
Directorship of the Hormone Research Institute. He became a Professor Emeritus
in 1991. From 1992 to the present, Dr. Rutter has served on the Board of
Overseers, Harvard University. Dr. Rutter has also served on the Board of
Trustees, Carnegie Institution of Washington, from 1995 to the present. Dr.
Rutter currently is a member of the Board of Directors of Novartis AG but,
having reached the statutory age of retirement, will step down at Novartis'
annual shareholders' meeting in April.
3
<PAGE>
JACK W. SCHULER, age 58, a director of the Company since 1990, is Chairman
of Stericycle, Inc., a company that processes, sterilizes and recycles medical
waste, and Chairman of Ventana Medical Systems, Inc., a company that develops
and manufactures instruments/reagent systems that automate immunohistochemistry.
From 1987 to 1989, he was President and Chief Operating Officer of Abbott
Laboratories ("Abbott"). He joined Abbott in 1972 as Director of Sales and
Marketing for the diagnostics division, and held a series of diagnostic sales
and management positions. He served on the Abbott Board of Directors from 1985
to 1989. Mr. Schuler is a member of the Board of Directors of Medtronic, Inc.
NOMINEE FOR ELECTION FOR A ONE-YEAR TERM EXPIRING AT THE ANNUAL MEETING OF
STOCKHOLDERS IN 2000
RAYMUND BREU, age 54, has been designated by Novartis as Dr. Krauer's
successor to the Chiron Board and is the Chief Financial Officer and a Member of
the Executive Committee of Novartis AG. Dr. Breu is responsible for all finance
activities of the Novartis Group worldwide. He assumed those positions upon the
formation of Novartis AG in December 1996, when Ciba-Geigy Limited merged with
Sandoz Ltd. Prior to that, Dr. Breu spent over 20 years with Sandoz Ltd. and
affiliates, serving as the Head of Group Finance and a Member of Sandoz
Executive Board from 1993 to 1996; Group Treasurer of Sandoz Ltd. from 1990 to
1993; Chief Financial Officer of Sandoz Corporation from 1985 to 1990, where he
was responsible for all Sandoz Finance activities in the US; and Head of
Finances for the affiliated companies of Sandoz in the UK from 1982 to 1985. Dr.
Breu joined the Group Treasury of Sandoz in 1975, and holds a doctorate in
mathematics.
DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 2000
DONALD A. GLASER, age 72, a director of the Company since 1991, was a
founder of Cetus Corporation, a member of Cetus' Board of Directors from 1971 to
1991, and Chairman of the Board of Scientific Advisors of Cetus. He has served
on the faculty at the University of California, Berkeley, since 1959. Dr. Glaser
received a Nobel Prize in Physics in 1960.
SEAN P. LANCE, age 51, was appointed President and Chief Executive Officer
effective May 1, 1998. During the prior thirteen years, Mr. Lance held various
executive positions with Glaxo Holdings plc, London, England. In October 1996 he
was appointed Managing Director of Glaxo Wellcome plc and in January 1997 he was
appointed Chief Operating Officer and Chief Executive Designate of Glaxo
Wellcome plc. From 1993 to 1996, Mr. Lance was Executive Director of Glaxo
Holdings, responsible for commercial operations in the Middle East, Africa,
Europe and Latin America. Mr. Lance was also President of the International
Federation of Pharmaceutical Manufacturers Associations from October 1996 to
February 1998, an Executive Member of the International Committee of
Pharmaceutical Research and Manufacturers of America, and a director of the
British Pharma Group. He also served on the Steering Committee of Healthcare
2000.
PIETER J. STRIJKERT, age 63, a director of the Company since 1987, is
Chairman of the Board of three Dutch companies: IntroGene b.v., Pharming Group
N.V. and UBiSys b.v. Previously, he was a member of the Management Board of
Gist-Brocades N.V., a fermentation and pharmaceutical company headquartered in
The Netherlands, from 1985 until 1995, and was Chairman of the Supervisory Board
of International Bio-Synthetics b.v. Dr. Strijkert is a Director of DepoTech
Corporation, San Diego, California and Chairman of Pharming Group N.V.
DIRECTORS CONTINUING IN OFFICE UNTIL THE ANNUAL MEETING OF STOCKHOLDERS IN 2001
VAUGHN D. BRYSON, age 60, a director of the Company since June 1997, is the
President of Life Science Advisors. Mr. Bryson was a thirty-two year employee of
Eli Lilly and Company ("Lilly") and served as the President and Chief Executive
Officer of Lilly from 1991 to 1993. He was Executive Vice President of that
company from 1986 until 1991. He served as a member of Lilly's Board of
Directors from 1984 until his retirement in 1993. Mr. Bryson was Vice Chairman
of Vector Securities International, Inc. from April 1994
4
<PAGE>
to December 1996. He also is a director of Ariad Pharmaceuticals, Inc., Fusion
Medical Technologies, Inc., Perclose, Inc., and Quintiles Transnational
Corporation, and President of Clinical Products L.P.
PIERRE E. DOUAZE, age 58, a director of the Company since 1995, was a member
of the Executive Committee of management of Ciba-Geigy Limited from 1991 to
1996, and Head of Ciba-Geigy Limited's Pharma and Self-Medication Division from
1989 to 1996. From December 1996 through December 1997, he was a member of the
Executive Committee of Novartis AG and Head of its Healthcare Division and
Pharmaceutical Sectors. In December 1997, Mr. Douaze retired from Novartis AG.
He currently serves as the Vice Chairman of Ares-Serono and as Vice Chairman of
Pharming N.V.
EDWARD E. PENHOET, age 58, a co-founder of the Company and a director since
its inception in 1981, was appointed the Dean of the School of Public Health, at
the University of California at Berkeley in July 1998. He served as Chief
Executive Officer until May 1998, when Sean P. Lance became President and Chief
Executive Officer and Dr. Penhoet became Vice Chairman of the Company. Dr.
Penhoet has been a faculty member of the Biochemistry Department at the
University of California, Berkeley, for 26 years. From March 1997 to January
1999, Dr. Penhoet served as Chairman of the California Healthcare Institute, a
public policy research and advocacy organization located in La Jolla,
California. Dr. Penhoet is a member of the Board of Directors of Onyx
Pharmaceuticals, Inc.
BOARD COMMITTEES AND MEETINGS
The Board of Directors held a total of thirteen meetings during 1998,
including three actions adopted by unanimous written consent.
From time to time the Company identifies opportunities for potential
collaborations and other transactions or arrangements between the Company or one
of its affiliates, on the one hand, and Novartis or one of its affiliates, on
the other. Any such transaction is submitted to the Board for approval by a
majority of disinterested Directors in accordance with applicable law. For this
purpose, the disinterested Directors are the Independent Directors who, as
described above, meet certain criteria demonstrating their independence from
both Novartis and the Company. Mr. Bryson, Mr. Coleman, Dr. Glaser and Dr.
Strijkert serve as Independent Directors and, effective January 1, 1999, Mr.
Schuler was designated an Independent Director. During 1998, the Independent
Directors held three meetings (in addition to the Board meetings described
above).
The Board has established six standing committees: an Audit Committee, a
Compensation Committee, a Stock Option Plan Administration Committee, a
Non-Employee Director Sub-Committee, a Nominating Committee, and a Strategic
Planning Committee. The Strategic Planning Committee has not yet been activated.
See "Certain Relationships and Related Transactions--Strategic Planning
Committee". The Governance Agreement provides that the proportion of Investor
Directors on each committee generally will be the same as the proportion of
Investor Directors on the Board.
The Audit Committee is responsible for finance, budget, audit, internal
control, accounting, and related matters. Mr. Coleman serves as Chairman and Dr.
Krauer and Mr. Schuler are members. The Audit Committee held three meetings
during 1998.
The Compensation Committee's principal functions are to evaluate the
performance of the Company's executive officers, to consider and plan for
executive officer succession, to review and approve executive compensation, to
review the design and competitiveness of the Company's compensation plans
generally and to administer the Company's stock option, stock purchase and
executive officer variable cash compensation plans pursuant to the terms of
those plans. The members of the Compensation Committee are non-employee
directors and are ineligible to participate in any of the plans or programs
which are administered by the Committee. Mr. Bryson chairs the Committee and Mr.
Coleman, Dr. Glaser, Dr. Krauer and Dr. Strijkert serve as members. The
Compensation Committee held six meetings in 1998, including two actions adopted
by unanimous written consent.
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The Board has delegated to the Employee Stock Option Committee authority to
make routine stock option grants calculated according to the policies,
procedures and methodologies approved from time to time by the Compensation
Committee, to any employee or consultant except executive officers and
directors. Dr. Rutter and, until his resignation as Chief Executive Officer in
May 1998, Dr. Penhoet served as members of the Employee Stock Option Committee.
In May 1998 Mr. Lance was appointed to the Committee.
The Board has delegated to a Non-Employee Director Sub-Committee authority
to approve certain terms of stock awards approved from time to time by the
Compensation Committee to officers and directors who are subject to Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
authorizing transactions that, for purposes of Section 16, are or may be deemed
the disposition of the option or the underlying Common Stock. Mr. Bryson, Mr.
Coleman and Dr. Strijkert serve as members of the Non-Employee Director
Sub-Committee. The Non-Employee Director Sub-Committee held three meetings
during 1998, including one action adopted by unanimous written consent.
The Nominating Committee is responsible for matters relating to composition
of the Board of Directors, including recruitment, nomination and succession. The
Governance Agreement provides that, until the year 2000, the Nominating
Committee will be comprised of two Independent Directors, one Management
Director and one Investor Director. The Governance Agreement contains a number
of other provisions relating to the composition and governance of the Nominating
Committee beginning in the year 2000. See "Certain Relationships and Related
Transactions". Dr. Rutter serves as Chairman and Mr. Coleman and Dr. Krauer
serve as members of the Nominating Committee; there is a vacancy for one
additional Independent Director to serve on the Committee. The Committee held
one meeting during 1998. The Nominating Committee has not established a
procedure for considering nominees for director nominated by stockholders of the
Company. Stockholders may nominate candidates for director in accordance with
the advance notice and other procedures contained in the Company's Bylaws.
During 1998, all of the directors, except Dr. Herrling, attended at least 75
percent of the combined total number of meetings (including actions by written
consent) of the Board and committees on which they served. Dr. Herrling attended
38% percent of the combined total number of meetings of the Board.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP to serve as the Company's
independent auditors for the fiscal year ending December 31, 1999, and has
directed that such selection be submitted for ratification by the stockholders
at the Annual Meeting. Representatives of KPMG LLP are expected to be present at
the Annual Meeting to respond to appropriate questions and to make a statement
if they so desire.
Stockholder ratification of the selection of KPMG LLP as the Company's
independent auditors is not required by the Company's Restated Certificate of
Incorporation, as amended, or the Company's Bylaws or otherwise. In the event
that a majority of the shares voting on the matter does not vote in favor of
ratifying the selection of KPMG LLP, the Board of Directors will reconsider the
selection. Even if the selection is ratified, the Board of Directors in its
discretion may direct the appointment of a different independent public
accounting firm at any time during the year if the Board determines that such a
change would be in the best interest of the Company.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and voting on the matter will be required to
ratify the selection of KPMG LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
6
<PAGE>
CERTAIN BENEFICIAL OWNERS
The following table lists all persons known by Chiron to own beneficially,
as of February 1, 1999, five percent or more of the outstanding shares of its
Common Stock. On February 1, 1999, there were 180,409,499 shares of Chiron
Common Stock outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
- - -------------------------------------------------------------------- ------------- --------
<S> <C> <C>
Novartis AG ........................................................ 79,319,796(2) 44%
Schwarzwaldallee 215
CH-4002
Basel, Switzerland
</TABLE>
- - ------------------------
(1) Under the terms of the Governance Agreement, Novartis is permitted to
acquire up to 49.9 percent of the Company's Common Stock through market
purchases and to participate pro rata in certain issuances of new securities
by the Company. In addition, in certain instances, under the terms of a
Market Price Option Agreement between Novartis and the Company, Novartis is
permitted to purchase Common Stock directly from the Company upon the
satisfaction of certain conditions. See "Certain Relationships and Related
Transactions" for a further discussion of Chiron's relationships with
Novartis.
(2) Includes 348,028 shares of the Company's Common Stock which underlie a
convertible subordinated note held by Novartis.
7
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 1, 1999 by: (i) each
director; (ii) each individual that served as Chief Executive Officer during
1998 and the four other most highly compensated executive officers during 1998
(the "Named Executive Officers"), and (iii) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (1)(2)(3) CLASS
- - -------------------------------------------------------------------------- ------------------- -----------
<S> <C> <C>
Richard W. Barker......................................................... 75,618 *
Vaughn D. Bryson.......................................................... 10,840 *
Lewis W. Coleman.......................................................... 72,756 *
Pierre E. Douaze.......................................................... 35,664 *
Donald A. Glaser.......................................................... 356,010 *
William G. Green.......................................................... 449,506 *
Paul L. Herrling.......................................................... 12,352 *
Alex Krauer............................................................... 32,664 *
Sean P. Lance............................................................. 1,562 *
Edward E. Penhoet......................................................... 1,174,790 *
William J. Rutter......................................................... 3,555,951 2.0%
Jack W. Schuler........................................................... 122,102 *
Pieter J. Strijkert....................................................... 53,808 *
Lewis T. Williams......................................................... 260,492 *
All directors and executive officers as a group
(23 persons)............................................................ 7,296,197 4.0%
</TABLE>
- - ------------------------
* Less than 1%.
(1) This disclosure is made pursuant to certain rules and regulations
promulgated by the Securities and Exchange Commission and the number of
shares shown as being beneficially owned may not be deemed to be
beneficially owned for other purposes. Unless otherwise indicated in the
footnotes, each of the named individuals has sole voting and/or investment
power with respect to such shares.
(2) The number of shares shown as beneficially held includes shares which the
individuals shown have the right to acquire on February 1, 1999 or within 60
days thereafter, pursuant to outstanding options, in the following amounts:
Dr. Barker, 74,221 shares; Mr. Bryson, 10,425 shares; Mr. Coleman, 69,341
shares; Mr. Douaze, 31,717 shares; Dr. Glaser, 107,757 shares; Mr. Green,
426,153 shares; Dr. Herrling, 11,908 shares; Dr. Krauer, 31,717 shares; Mr.
Lance, none; Dr. Penhoet, 753,522 shares; Dr. Rutter, 801,870 shares; Mr.
Schuler, 117,854 shares; Dr. Strijkert, 44,445 shares; Dr. Williams, 255,012
shares; and all directors and executive officers as a group, 3,678,010
shares.
(3) The number of shares shown as beneficially held does not include the
following amounts of Common Stock underlying automatic share rights issuable
to each non-employee director: Mr. Bryson, 2,967 shares; Mr. Coleman, 3,376
shares; Mr. Douaze, 3,376 shares; Dr. Glaser, 3,376 shares; Dr. Herrling,
3,087 shares; Dr. Krauer, 3,376 shares; Mr. Schuler, 663 shares and Dr.
Strijkert, 3,376 shares. The share rights vest in equal installments over
five years from the date of grant. The terms of the automatic share rights
are described below in "Compensation of Directors and Executive
Officers--Compensation of Directors". The number of shares shown as
beneficially held does not include the following amounts of Common Stock
underlying restricted share rights held by certain executive officers: Dr.
Williams, 100,000; Dr. Barker, 40,000; all executive officers as a group,
146,000. For a discussion of the terms of these restricted share rights, see
"Certain Employment Agreements", below.
8
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
The Company pays each non-employee director a retainer fee of $16,000 per
year; an additional fee of $2,000 for each meeting of the Board of Directors
attended in person; an additional fee of $500 for each telephone meeting of the
Board of Directors; and an additional fee of $200 per hour, to a maximum of
$1,000 per day, for time spent on meetings of committees of the Board of
Directors on days when no meeting of the Board of Directors is held. The Company
also pays each non-employee director serving as chairman of one of the Board
committees an additional retainer of $5,000 per year.
Under the terms of their employment with Novartis, the Investor Directors
are required to pay over to Novartis fees received from the Company for director
services. At Novartis' request, the Company has agreed to pay these fees
directly to Novartis.
On the last business day of the second quarter of each fiscal year of the
Company ("automatic grant date"), each continuing non-employee director
automatically receives a nonstatutory option ("automatic option grant") to
purchase that number of shares of Common Stock determined by dividing $100,000
(subject to cost-of-living increases after 1996) by the average stock price of a
share of Common Stock over the preceding 12 months. On the date that a person
first becomes a non-employee director (if other than an automatic grant date),
he or she then receives an automatic option grant to purchase a pro rata number
of shares of Common Stock, based on the number of months the non-employee
director will serve as a director before the next automatic grant date. Each
automatic option grant has an exercise price equal to the fair market value of
the Common Stock on the date of grant and a term of ten years, but expires three
months after the optionee ceases to serve as a director, employee, consultant or
independent contractor (twelve months if due to disability or death). Automatic
options are immediately exercisable, but the shares acquired are subject to
repurchase by the Company at the original exercise price, if a non-employee
director ceases to provide services to Chiron or its subsidiaries as a director,
employee, consultant or independent contractor. This repurchase right lapses in
equal annual installments over five years from the grant date, provided the
director continues to provide services to the Company, and lapses immediately,
in full, upon death or disability.
Each newly elected or appointed non-employee director is automatically
granted the right to receive that number of shares of Common Stock ("automatic
share right") purchasable with $40,000 on the date of such election or
appointment. (A similar $40,000 share right was granted to existing directors on
the 1996 automatic grant date.) On each subsequent automatic grant date while
the individual is serving as a non-employee director, the non-employee director
is automatically granted a $25,000 share right. However, if a non-employee
director is newly elected or appointed on a date other than an automatic grant
date, then on the next automatic grant date after such election or appointment,
the non-employee director is granted a pro rated $25,000 share right, based on
the number of months the individual served as a non-employee director before
such automatic grant date. The dollar values are subject to cost-of-living
increases after 1996. Share rights vest in equal annual installments over five
years from the date of grant, provided the non-employee director continues to
provide services to the Company, and vest in full upon death or disability.
Of the current directors, Mr. Lance, Dr. Penhoet and Dr. Rutter are not
eligible to receive automatic option grants and automatic share rights because
they are employees of the Company.
In December 1991, the Company retained Mr. Schuler as a consultant. The
Company agreed to pay Mr. Schuler $200,000 per year of consulting, payable in
monthly increments, and granted Mr. Schuler options to acquire 160,000 shares of
Chiron Common Stock, which vested on a pro rata basis over four years. Mr.
Schuler waived his right to receive automatic option grants and automatic share
right grants during the period he served as a consultant to the Company. This
consulting agreement was terminated in December 1998. Following the termination
of his consulting agreement, as a continuing director
9
<PAGE>
Mr. Schuler will be eligible to receive automatic awards for non-employee
directors under the terms of the Company's 1991 Stock Option Plan. In addition,
in recognition of his contributions to the Company as a consultant, in December
1998, the Company granted to Mr. Schuler discretionary awards of restricted
share rights as to 663 shares of Common Stock and options to acquire 2,654
shares of Common Stock. The stock options were immediately exercisable, but any
shares acquired are subject to repurchase by the Company on the same terms and
conditions as apply to repurchase of shares acquired pursuant to automatic
option grants, described above.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years 1998, 1997, and 1996,
respectively, certain information concerning compensation awarded or paid to or
earned by the Named Executive Officers for all services rendered in all
capacities to the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------------------
----------------------------------------------- RESTRICTED SECURITIES
NAME AND FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($)(7) OPTIONS (#) COMPENSATION ($)(8)
- - -------------------------- ------ ---------- --------- ---------------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sean P. Lance(1) 1998 $473,846 $700,000 $-- $-- 750,000 $ 193,731
President and Chief 1997 -- -- -- -- -- --
Executive Officer 1996 -- -- -- -- -- --
Edward E. Penhoet(2) 1998 311,923 172,920 -- -- 75,000 23,763
Vice Chairman; 1997 425,673 184,800 -- -- 90,000 12,891
President and Chief 1996 422,917 255,000 -- -- 140,000 4,500
Executive Officer
William J. Rutter(3) 1998 456,923 345,840 -- -- 75,000 50,240
Chairman 1997 425,673 184,800 -- -- 90,000 34,573
1996 422,917 255,000 -- -- 140,000 76,996
Lewis T. Williams(4) 1998 412,646 247,950 -- 1,693,750 50,000 26,236
Chief Scientific 1997 299,983 193,500 -- -- 46,200 8,207
Officer; 1996 293,333 177,832 -- -- 60,000 4,500
President, Chiron
Technologies
William G. Green(5) 1998 377,068 247,139 -- -- 42,000 9,564
Senior Vice President, 1997 342,764 159,640 -- -- 45,600 8,970
Secretary and General 1996 339,000 173,033 -- -- 56,000 6,500
Counsel
Richard W. Barker(6) 1998 354,854 500,000 -- -- -- 18,042
Senior Vice President, 1997 333,479 26,420 -- -- 40,400 26,793
Corporate Development 1996 170,000 131,175 -- 1,000,000 100,000 49,138
</TABLE>
- - ------------------------
(1) Mr. Lance was appointed President and Chief Executive Officer effective May
1, 1998. "All Other Compensation" for Mr. Lance in 1998 includes $191,073
for relocation assistance and $2,658 paid on behalf of Mr. Lance by the
Company for the purchase of life insurance.
(2) Dr. Penhoet served as President and Chief Executive Officer until the
appointment of his successor, Mr. Lance, on May 1, 1998. "All Other
Compensation" in 1998 includes Company contributions of $13,469 under the
Company's Supplemental Employee Retirement Plan on behalf of Dr. Penhoet and
$3,894 paid on behalf of Dr. Penhoet by the Company for the purchase of life
insurance.
(3) "All Other Compensation" for Dr. Rutter includes Company payments to him of
$10,000 in 1998, $10,000 in 1997, and $72,496 in 1996 under the terms of a
supplemental benefits agreement described under "Pension Agreements." Also
included under "All Other Compensation" is $33,840 paid on behalf of Dr.
Rutter by the Company in 1998 for the purchase of life insurance.
(4) "All Other Compensation" in 1998 for Dr. Williams includes Company
contributions of $17,846 under the Company's Supplemental Employee
Retirement Plan on behalf of Dr. Williams and $1,990 paid by the Company on
Dr. Williams' behalf for the purchase of life insurance.
10
<PAGE>
(5) "All Other Compensation" for Mr. Green includes $2,960 in 1998, $2,242 in
1997, and $2,420 in 1996 paid on his behalf by the Company for the purchase
of life insurance, and $204 in 1998 for Flexible Credit reimbursements from
the Company.
(6) Dr. Barker served as President and Chief Executive Officer of Chiron
Diagnostics until the sale of Chiron Diagnostics on November 30, 1998. "All
Other Compensation" for Dr. Barker includes the following amounts for
relocation assistance: 1997: $17,918; 1996: $41,812. Also included in "All
Other Compensation" are Company contributions of $7,302 under the Company's
Supplemental Employee Retirement Plan on behalf of Dr. Barker and $4,340
paid by the Company on Dr. Barker's behalf for the purchase of life
insurance. Dr. Barker began employment with the Company in June 1996.
(7) In January 1998, Dr. Williams was granted restricted share rights with
respect to 100,000 shares of the Company's Common Stock. The share rights
vest in December 2002, with earlier full vesting upon a change in control of
the Company (other than by reason of an increase in Novartis' ownership
interest), and earlier pro rata vesting in the event Dr. Williams'
employment is terminated by the Company without cause or upon termination of
employment due to death or permanent disability (based on the actual number
of months worked after December 1997 plus, in the case of termination
without cause, 36 months).
In June 1996, the Company granted to Dr. Barker restricted share rights with
respect to 40,000 shares of its Common Stock which vest on June 14, 2001.
Vesting will accelerate upon a termination of Dr. Barker's employment
without cause or upon Dr. Barker's death or permanent disability as to a pro
rata number of shares of Common Stock based on the number of months of his
employment prior to the triggering event.
(8) In addition to the items discussed in footnotes 1 - 6 above, "All Other
Compensation" includes Company contributions of $6,400 in 1998, $6,400 in
1997, and $4,500 in 1996 under the Company's 401(k) Plan on behalf of each
of the named executives, other than Mr. Lance, to match pretax elective
deferral contributions (included under Salary) made by each named executive
to such plan in each year indicated. "All Other Compensation" does not
include amounts paid to the Named Executive Officers for options surrendered
pursuant to the Novartis option surrender program. See notes to the
"Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option
Values" table and "Certain Relationships and Related Transactions--Cash
Payments to Certain Stock Option Holders" for a further discussion of these
payments.
11
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company has granted options to its executive officers under the
Company's 1991 Stock Option Plan. The following tables show certain information
regarding options granted to, exercised by and held by the Named Executive
Officers during 1998:
OPTION GRANTS IN FISCAL YEAR 1998(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#)(2) FISCAL YEAR ($/SH)(3) DATE
- - ---------------------------------------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Sean P. Lance (5)....................... 750,000 15.0802% $ 21.063 3/18/08
Edward E. Penhoet....................... 75,000 1.5080% $ 19.438 2/19/08
William J. Rutter....................... 75,000 1.5080% $ 19.438 2/19/08
Lewis T. Williams....................... 50,000 1.0053% $ 19.438 2/19/08
William G. Green........................ 42,000 0.8445% $ 19.438 2/19/08
Richard W. Barker....................... -- -- -- --
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM (4)
------------------------------
NAME 0%($) 5%($) 10%($)
- - ---------------------------------------- ----- ---------- ----------
<S> <C> <C> <C>
Sean P. Lance (5)....................... $-0- $9,934,570 $25,176,150
Edward E. Penhoet....................... $-0- $ 916,810 $2,323,378
William J. Rutter....................... $-0- $ 916,810 $2,323,378
Lewis T. Williams....................... $-0- $ 611,207 $1,548,918
William G. Green........................ $-0- $ 513,414 $1,301,092
Richard W. Barker....................... -- -- --
</TABLE>
- - ------------------------
(1) In accordance with SEC rules, this table lists grants of stock options made
in 1998. Except for the grants made to Mr. Lance pursuant to his initial
employment agreement (see "Certain Related Transactions--Certain Employment
Agreements"), the grants reflected in the table were made in February 1998
based on, among other things, 1997 performance. In February 1999, the
following grants of stock options were made based upon, among other things,
1998 performance: Mr. Lance, 100,000; Dr. Penhoet, 5,000; Dr. Rutter,
62,500; Dr. Williams, 50,000; Mr. Green, 50,000; Dr. Barker, none. The
exercise price for options granted in February 1999 is $22.875 per share,
and the expiration date is February 18, 2009.
(2) In general, the options become exercisable as to 25 percent of the granted
shares on the first anniversary of the date of grant and, for the balance,
in equal monthly installments over the 36-month period thereafter, so long
as service with the Company or one of its subsidiaries continues. To the
extent not already exercisable, the options generally become exercisable in
the event of an agreement to dispose of all or substantially all of the
assets or outstanding capital stock of the Company by means of sale, merger,
reorganization or liquidation. However, an outstanding option will not be so
accelerated if, in connection with such corporate transactions, the option
is either assumed or replaced with a comparable option to purchase shares of
capital stock of the successor corporation.
(3) Upon exercise, the exercise price and any related tax withholding
obligations may generally be paid in cash, or, in the Compensation
Committee's discretion, in shares of Common Stock held by the optionee for
the requisite period to avoid a charge to Chiron's earnings and valued as of
the exercise date, or under certain conditions from the proceeds of a same
day sale of the shares acquired upon exercise of the option. The
Compensation Committee may also assist an optionee in the exercise of an
option by authorizing a loan from the Company for the purchase price and
related tax obligations.
(4) In accordance with Securities and Exchange Commission rules, these columns
reflect hypothetical gains or "option spreads" that would exist for the
respective options. These rules require that the gains be based on assumed
rates of annual compounded stock price appreciation of 5 percent and 10
percent from the date the options were granted over the full ten-year option
term. The market price of Chiron Common Stock in February 2008 would be
$31.662 and $50.416 per share, respectively, at 5 percent and 10 percent
annual compounded rates of appreciation, and in March 2008 would be $34.309
and $54.631, respectively, at such rates of appreciation. There can be no
assurance that these assumed rates of appreciation or any appreciation will
occur.
(5) Of the 750,000 shares of Common Stock underlying the stock options granted
to Mr. Lance, 125,000 shares will vest upon the first annual anniversary of
Mr. Lance's employment with the Company, 475,000 shares will vest in 48
successive equal monthly installments commencing on the first anniversary of
Mr. Lance's employment, and the remaining 150,000 option shares will vest on
the fifth annual anniversary of Mr. Lance's employment, provided that 75,000
of the 150,000 may vest as early as the end of three years based upon
attainment of certain performance goals.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#)(3) OPTIONS AT FY-END ($)(4)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE(#)(1) REALIZED ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------------------------------- ----------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Sean P. Lance.................. -- -- -- 750,000 -- $ 3,421,875
Edward E. Penhoet.............. -- -- 670,934 212,482 $6,069,114 $ 1,311,837
William J. Rutter.............. -- -- 719,282 212,482 $6,494,171 $ 1,311,837
Lewis T. Williams(5)........... 50,000 $ 540,850 202,147 137,209 $1,904,200 $ 3,601,477
William G. Green............... 40,000 $ 500,495 381,959 109,500 $4,486,999 $ 720,579
Richard W. Barker.............. 5,050 $ 19,253 66,708 108,642 $ 59,051 $ 1,196,362
</TABLE>
- - ------------------------
(1) Does not include the number of securities underlying options surrendered
pursuant to the Novartis option surrender program. See "Certain
Relationships and Related Transactions--Cash Payments to Certain Stock
Option Holders". The number of securities underlying options surrendered
pursuant to such program in fiscal year 1998 was as follows: Mr. Lance,
none; Dr. Penhoet, 59,956 shares; Dr. Rutter, none; Dr. Williams, 9,504; Mr.
Green, none; Dr. Barker, none.
(2) Does not include the value realized upon the surrender of options pursuant
to the Novartis option surrender program. See "Certain Relationships and
Related Transactions--Cash Payments to Certain Stock Option Holders". The
value realized upon surrender of options pursuant to such program in fiscal
year 1998 (calculated as $29.25 per share less the exercise price) was as
follows: Mr. Lance, none; Dr. Penhoet, $782,526; Dr. Rutter, none; Dr.
Williams, $167,145; Mr. Green, none; Dr. Barker, none.
(3) Includes unexercised, unsurrendered options held at fiscal year end which
the Named Executive Officers are entitled to surrender pursuant to the
Novartis option surrender program, as follows: Mr. Lance, none exercisable,
none unexercisable; Dr. Penhoet, none exercisable, none unexercisable; Dr.
Rutter, 48,348 exercisable, none unexercisable; Dr. Williams 5,645
exercisable, 7,167 unexercisable; Mr. Green, 931 exercisable, none
unexercisable; Dr. Barker, none exercisable, none unexercisable.
(4) The value of all unexercised, unsurrendered options is calculated in
accordance with Securities and Exchange Commission rules using the value of
the Company's shares at the end of fiscal year 1998 ($25.63). The
incremental value of options which the holder is entitled to surrender
pursuant to the Novartis option surrender program (calculated as the
difference between the amount payable under the Novartis option surrender
program and the value of the Company's shares at fiscal year end, $29.25
less the year-end market value of $25.63 per share) is as follows: Mr.
Lance, $0 exercisable, $0 unexercisable; Dr. Penhoet, $0 exercisable, $0
unexercisable; Dr. Rutter, $175,020 exercisable, $0 unexercisable; Dr.
Williams, $20,435 exercisable, $25,945 unexercisable; Mr. Green, $3,370
exercisable, $0 unexercisable; Dr. Barker, $0 exercisable, $0 unexercisable.
See "Certain Relationships and Related Transactions--Cash Payments to
Certain Stock Option Holders".
(5) The value of Dr. Williams' and Dr. Barker's unexercised options does not
include restricted share rights. See footnote 7 to the "Summary Compensation
Table", above.
13
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during fiscal year 1998
were Mr. Bryson, Mr. Coleman, Dr. Glaser, Dr. Krauer and Dr. Strijkert.
Dr. Rutter is Chairman of the Company and a member of the Board of Directors
of Novartis. Dr. Rutter will step down from the Novartis' Board in April 1999.
Dr. Krauer is a member of the Company's Board of Directors and Compensation
Committee and also serves as Chairman of the Board of Novartis. Dr. Krauer has
announced that he will retire from his current position with Novartis and will
become an Honorary Chairman at Novartis' annual shareholders' meeting in April
1999. The Company has a strategic alliance with Novartis and in connection
therewith has entered into a series of arrangements with Novartis. These
arrangements contributed 11% of the Company's total revenues in fiscal year
1998. See "Certain Relationships and Related Transactions" for a further
description of Chiron's relationships with Novartis.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
The compensation of Chiron's executive officers is determined by the
Compensation Committee of the Board of Directors. All members of the
Compensation Committee during 1998 were non-employee directors. As required by
the rules of the Securities and Exchange Commission, this Compensation Committee
Report describes the Compensation Committee's compensation policies applicable
to the Company's executive officers (including the Named Executive Officers),
including the relationship of corporate performance to executive compensation.
COMPENSATION PHILOSOPHY
Chiron's executive compensation programs seek to accomplish several major
goals:
- To align the interests of executive officers with the long-term interests
of stockholders through participation in the Company's long-term,
equity-based incentive compensation programs, principally stock options;
- To motivate executives to achieve important business and individual
performance objectives and to reward them when such objectives are met;
and
- To recruit and retain highly qualified executive officers by offering
overall compensation that is competitive with that offered for comparable
positions in similar companies.
The Company, from time to time, employs independent compensation consulting
firms to evaluate the Company's executive compensation programs. These firms
have provided the Compensation Committee with survey data using analyses of
benchmark positions from selected companies (the "Survey Groups") with whom the
Company competes for the recruitment and retention of executive personnel(2).
The survey information includes comparative data regarding base annual salaries;
annual variable cash compensation; and long-term equity-based incentives.
- - ------------------------
(1) The material in this report and in the Common Stock price performance graph
is not soliciting material, is not deemed filed with the Securities and
Exchange Commission, and is not incorporated by reference in any filing of
the Company under the Securities Act of 1933, as amended, or the Exchange
Act, whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language therein.
(2) See the "Common Stock Price Performance Graph", below. The graph provides
stock performance information for groups of companies that include some, but
not all, of the companies included in the Survey Groups.
14
<PAGE>
The Compensation Committee believes that total annual cash compensation
should be competitive and that a significant portion of cash compensation should
be "at risk". Therefore, base salaries for executive officers are targeted at
the median (50th percentile) of the market, generally as determined by reference
to the Survey Group information, and annual variable cash compensation awards
are used to provide the potential, with excellent individual, business unit and
overall Company performance, to bring total cash compensation well over the 50th
percentile of the market.
The Compensation Committee believes that stock option and other equity
incentives awarded under the Company's 1991 Stock Option Plan serve to align the
long-term interests of the Company's executive officers with the interests of
its stockholders and contribute importantly to the recruitment and retention of
executive personnel. Stock options generally are granted upon initial employment
and annually thereafter with exercise prices equal to the prevailing market
price at date of grant. Therefore, stock options will have value to the
executive only to the extent that the market price for the Company's stock
increases. Stock option grants generally become exercisable or "vest" in
increments over four years, so long as service of the option recipient with the
Company continues. In addition, the Company has granted restricted share rights
to employees in highly valued positions as targeted retention incentives.
Restricted share rights consist of the right to receive shares of the Company's
Common Stock, subject to continued employment with the Company. In determining
the size of stock option grants, the Committee does not consider long-term
equity-based awards previously granted, whether vested or unvested, or the
aggregate number of outstanding stock options held by the recipients of the
current awards. The Compensation Committee expects that its long-term
equity-based incentive compensation plan will increasingly be linked to specific
performance objectives.
The Survey Group information serves as a general reference for the
Compensation Committee. However, because of many factors, including the inherent
lack of comparability between any individual officer's responsibilities,
performance, and value to the Company and the average information from the
Survey Groups, no element of any executive officer's compensation is determined
solely or principally by reference to the Survey Group information.
COMPENSATION COMMITTEE PROCEDURES AND PERFORMANCE CONSIDERATIONS
In February of each year, the Compensation Committee meets to consider the
Company's performance and the performance of each executive officer for the
prior year. For 1998, the Committee met on February 18, 1999 and reviewed the
methodology used by senior management to assess such performance and to
formulate recommendations for the compensation of all officers, including the
Named Executive Officers, other than Mr. Lance and Dr. Rutter. The Committee
also sought input from other non-employee directors regarding the overall
performance of the Company and its business units and the performances of Mr.
Lance and Dr. Rutter. At this meeting, the Compensation Committee approved the
base salaries for 1999, the variable cash compensation for performance in 1998
and the award of stock options with respect to all executive officers. Similar
meetings occurred in February 1998 to review the performance of the Company and
the executive officers in 1997 and to determine each executive officer's base
salary for 1998.
The Committee reviewed the Company's performance, including specific
performance objectives determined annually by the Board of Directors to satisfy
the terms of the Governance Agreement between Chiron and Novartis (the
"Measurement Standards").
Based upon the compensation philosophy as described above and its review of
performance and other factors, the Compensation Committee determined the base
salaries and annual variable cash compensation of the Named Executive Officers
for 1998 as shown in the compensation table on page 10 of the Proxy Statement.
It also granted stock options to the Named Executive Officers as shown in the
option grants table and notes thereto on page 12.
15
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Lance became President and Chief Executive Officer of the Company on May
1, 1998. His compensation for 1998, including base salary, eligibility for
annual variable cash compensation, and stock options, were negotiated when he
was recruited by the Company and are reflected in his employment agreement. See
"Certain Relationships and Related Transactions--Certain Employment Agreements".
Dr. Penhoet served as President and Chief Executive Officer of Chiron
through April 30, 1998, although many senior managerial responsibilities were
shared between Dr. Rutter and Dr. Penhoet. In February 1998, the Compensation
Committee determined that the base salaries of $440,000 for each of them, that
had been effective since March 3, 1997, would remain unchanged for 1998.
On February 18, 1999, the Committee approved a variable cash compensation
award for each of Mr. Lance of $700,000, Dr. Rutter of $345,840 and Dr. Penhoet
of $172,920. The Committee determined the variable cash compensation of Mr.
Lance and Dr. Penhoet and Dr. Rutter based principally upon the Company's
overall performance in 1998, based in part upon the Board's conclusion that the
Company had satisfied the Measurement Standards for 1998, composed of relative
total stockholder return, earnings and revenue growth, and innovation
milestones.
At its February 1999 meeting, the Compensation Committee awarded stock
options to Mr. Lance, Dr. Rutter and Dr. Penhoet in the amounts set forth in
footnote 1 to the option grants table on page 12. In addition, the Compensation
Committee awarded to Dr. Penhoet restricted share rights with respect to 1,500
shares of the Company's Common Stock. These awards were based on, among other
things, the Committee's subjective assessment of their respective performance
and impact upon Company performance in 1998.
POLICY REGARDING SECTION 162(m)
Section 162(m) of the Internal Revenue Code limits federal income tax
deductions for compensation paid to each of the chief executive officer and the
four other most highly compensated officers of a public company to $1,000,000
per year, but contains an exception for certain performance-based compensation.
The Compensation Committee uses stock options and performance units that qualify
for the performance-based exception to the Section 162(m) deduction limits. As
described above under Long-Term Incentives, the Committee has increasingly
linked long-term, equity-based incentive compensation to performance objectives.
The Committee intends to continue to do so, as long as it considers such use to
be in the best interest of the Company and its stockholders. However, because
the net cost of compensation, including its deductibility, is weighed by the
Compensation Committee against many other factors in determining executive
compensation, the Committee may determine that it is appropriate and in the best
interests of the Company to authorize compensation that is not deductible,
whether by reason of Section 162(m) or otherwise. For example, the Compensation
Committee elected not to grant awards of variable cash compensation for 1997 or
1998 in a manner that qualifies for the performance-based exception to Section
162(m), because it felt that the variable cash compensation of all officers
should be administered consistently, using the Company's performance metrics to
measure corporate and business unit performance. While these performance metrics
generally are quantitative measures of performance, they include subjective
innovation milestones that do not qualify for the performance-based exception to
Section 162(m).
COMPENSATION COMMITTEE
VAUGHN D. BRYSON, CHAIRMAN
Lewis W. Coleman
Donald A. Glaser
Alex Krauer
Pieter J. Strijkert
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COMMON STOCK PRICE PERFORMANCE GRAPH
The graph set forth below shows the value of an investment of $100 on
December 31, 1993 in each of Chiron Common Stock, the Standard & Poor's
Healthcare Composite Index ("S&P Healthcare") and the AMEX Biotechnology Index
("Amex Biotech"). The values are calculated as of December 31 of each year
assuming reinvestment of dividends paid by the companies included in the
indices. The bold line on the graph shows the value of an initial $100
investment in Chiron Common Stock over the five year period. In addition, a
second line on the graph shows the value of such an investment adjusted to show
the effect of the tender offer by Ciba-Geigy Limited in January 1995 for
approximately 38 percent of the Company's Common Stock. For the purposes of that
line, it is assumed that Ciba purchased through the tender offer 38 percent of a
Chiron stockholder's shares and the stockholder used the proceeds to purchase
additional shares of Chiron Common Stock at a post tender offering price of
$14.69 (adjusted for the four-for-one stock split) on January 4, 1995.
The comparisons in the graph (except for the total stockholder return of
Chiron Common Stock adjusted for the tender offer) are required by the
Securities and Exchange Commission and are not intended to forecast or be
indicative of possible future performance of the Company's Common Stock.
CHIRON STOCK PRICE VS. S&P HEALTHCARE, AMEX BIOTECH INDICES
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
ON INVESTMENT OF $100 ON DECEMBER 31, 1993
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C> <C>
Adjusted (1)
Normalized Normalized Normalized Normalized
Chiron Stock Chiron Stock S&P Health Care Amex Biotech
1993 $100 $100 $100 $100
1994 $96 $96 $113 $71
1995 $132 $181 $177 $116
1996 $89 $122 $213 $125
1997 $81 $111 $305 $140
1998 $125 $172 $440 $160
</TABLE>
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH NOVARTIS
The Company has an alliance with Novartis, a life sciences company
headquartered in Basel, Switzerland which was formed as a result of the December
1996 merger between Ciba-Geigy Limited ("Ciba") and Sandoz Limited. Through a
series of transactions that became effective in January 1995, Ciba acquired
shares of Common Stock which, when combined with shares already held by Ciba,
represented 49% of the then-outstanding Common Stock of the Company; the Company
acquired from Ciba all of the capital stock of Chiron Diagnostics Corporation
(formerly Ciba Corning Diagnostics Corp.) ("Chiron Diagnostics"); and the
Company acquired Ciba's interests in Chiron Vaccines Company and Chiron S.p.A.
(formerly, The Biocine Company and Biocine S.p.A.). As a result of dilution
stemming primarily from the issuance of Common Stock under the Company's
employee stock option and stock purchase plans and in connection with certain
acquisitions, as of February 1, 1999, Novartis held shares representing
approximately 44% of the Company's outstanding Common Stock.
In connection with these transactions, the Company and Ciba entered into
certain governance, investment and related agreements which are described below.
THE GOVERNANCE AGREEMENT
STANDSTILL. Pursuant to the Governance Agreement, Novartis has agreed not
to increase its ownership interest in the Company above 49.9% before January 15,
2000. Thereafter, Novartis has agreed not to increase its ownership interest in
the Company above 55% except through a "buy-out transaction" in which it
acquires all of the outstanding capital stock of the Company in accordance with
certain procedures set forth in the Governance Agreement, including a
requirement that Novartis not propose or consummate a "buy-out transaction"
before January 5, 2001 unless the Company has failed to achieve certain
measurement standards two years in a row. See "Strategic Planning Committee",
below. During these standstill periods, Novartis' ownership interest may exceed
the specified limits (i) if the acquisition of additional equity securities by
Novartis is approved by a majority of the Independent Directors, or (ii) if the
increase in Novartis' ownership interest is the result of an action by the
Company (such as a purchase by the Company of outstanding Common Stock or a sale
of Common Stock to Novartis or its affiliates by the Company), provided that in
any event Novartis' ownership interest may not exceed 79.9%.
PROXY SOLICITATIONS AND VOTING TRUSTS. The Governance Agreement further
provides that unless and until Novartis and its affiliates own all of the
capital stock of the Company, they will not engage in any solicitation of
proxies, initiate or encourage the initiation of any shareholder proposals or
otherwise encourage any person with respect to the voting of equity securities
of the Company; nor will they enter into any voting trust or similar arrangement
for the voting of any shares of the Company's equity securities.
ANTI-DILUTION PROVISIONS. Under the Governance Agreement, subject to
certain exceptions, if the Board of Directors authorizes the issuance of any
equity securities, Novartis will have the right to purchase a portion of such
securities sufficient to preserve its ownership interest in the Company. If
Novartis elects to purchase any such securities, it will do so at the same time
and on the same terms and conditions as the new securities are issued and sold
to third parties (except that, if such securities are issued for consideration
other than cash, Novartis shall pay the fair market value thereof, as determined
in accordance with the Governance Agreement).
CERTAIN CORPORATE TRANSACTIONS. The Governance Agreement provides that, so
long as Novartis owns at least 40% of the outstanding voting stock of the
Company, the Company will not engage in certain corporate transactions without
Novartis' approval and will not engage in certain other corporate transactions
without the consent of a majority of the Investor Directors.
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TRANSACTIONS BETWEEN THE COMPANY AND NOVARTIS. The Governance Agreement
provides that the Company will not enter into any material transaction with
Novartis or any of its affiliates (other than those expressly contemplated by
the Investment Agreement and the related agreements) unless such transaction is
approved by a majority of the Independent Directors or holders of a majority of
the voting stock which is held by unaffiliated stockholders.
STRATEGIC PLANNING COMMITTEE. The Governance Agreement further provides
that the Board will set and approve Measurement Standards to evaluate the
Company's performance for each fiscal year, and that if the applicable
Measurement Standards are not met for any fiscal year, a Strategic Planning
Committee will be established to prepare and recommend to the Board a remedial
plan intended to restore the Company to compliance with the Measurement
Standards. If the Company fails to meet the Measurement Standards for two
consecutive fiscal years, the Strategic Planning Committee will have the
delegated power of the Board (until the applicable Measurement Standards are met
for a full year) to set the compensation and terminate the employment of the
Company's executive officers. The Governance Agreement provides that the
Strategic Planning Committee will be comprised of the three Investor Directors,
three Independent Directors and one Management Director and the Committee will
act by the vote of a majority of its members, provided that the Management
Director member will not be able to break any tie vote between the Investor
Director members, on the one hand, and the Independent Director members, on the
other hand. The Company has met the applicable Measurement Standards each year
since the strategic alliance with Novartis was formed, so the Strategic Planning
Committee has not been formed.
NOMINATION OF DIRECTORS AND VOTING OF SHARES. As described above, the
Governance Agreement contains provisions currently applicable to the nomination
of directors of the Company and the voting of shares held by Novartis. See
"Voting of Shares Held By Novartis" and "Proposal 1--Election of Directors". A
number of other provisions relating to the Nominating Committee become
applicable over time. Beginning in the year 2000, so long as Novartis owns at
least 40 percent of the outstanding capital stock of the Company, an additional
Investor Director will serve on the Nominating Committee of the Board and the
Management Director serving on the Nominating Committee will not be able to
break any tie vote between all the Investor Director members, on the one hand,
and all the Independent Director members, on the other hand. Beginning in the
year 2006, so long as Novartis owns at least 49 percent of the outstanding
capital stock of the Company, the Investor Director members of the Nominating
Committee will have a deciding vote to break any tie vote between all the
Investor Director members, on the one hand, and all the Independent Director
members, on the other hand.
THE INVESTMENT AGREEMENT
BANK DEBT GUARANTEE. Under the terms of the Investment Agreement, Novartis
has agreed to guarantee the obligations of the Company under one or more
revolving credit facilities. The principal amount of indebtedness under the
guaranteed credit facilities outstanding at any one time may not exceed a
specified cap, referred to as the "maximum borrowing amount". Initially, the
maximum borrowing amount is $425 million. However, if the Company elects to
request additional R&D funding under the Limited Liability Company Agreement
described below, the maximum borrowing amount under the guaranteed credit
facilities will be reduced by $1.50 for each $1.00 in additional R&D funding (up
to $50 million in additional R&D funding). In November 1996, the parties agreed
that Chiron could increase the maximum borrowing amount under the guaranteed
credit facilities by up to $300 million; in exchange, the Company's right, under
the terms of the Subscription Agreement described below, to require a Novartis
affiliate to purchase up to $500 million of Common Stock of the Company from the
Company will be correspondingly reduced by the amount of any such increase. The
Novartis guarantee will expire on January 1, 2008. The Company has entered into
a Reimbursement Agreement with Novartis pursuant to which the Company has agreed
to reimburse Novartis for any payments made or out-of-pocket expenses incurred
by Novartis in connection with the guarantee. The Reimbursement Agreement
provides that the Company's obligations thereunder will be fully collateralized
by collateral reasonably acceptable to
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Novartis. In fiscal year 1998, Novartis guaranteed revolving credit facilities
for the benefit of the Company totaling $200 million as well as $152.9 million
of the Company's operating lease commitments. The Company's obligations under
the Reimbursement Agreement have not been collateralized.
DIAGNOSTICS PROMISSORY NOTE AND CERTAIN OTHER INDEBTEDNESS. In connection
with the acquisition by the Company of Chiron Diagnostics in January 1995, all
then-existing indebtedness of Chiron Diagnostics and its subsidiaries to
Novartis was consolidated into a single loan evidenced by a promissory note in
the amount of $50.8 million, maturing January 1, 2000. This promissory note was
transferred to and assumed by the Company in December 1998 in connection with
the sale of Chiron Diagnostics to Bayer Corporation. At the end of fiscal year
1998, interest of $13.1 million, calculated at a variable rate based on the
London Interbank Offered Rate ("LIBOR"), had accrued on the principal amount
outstanding under that promissory note.
THE LIMITED LIABILITY COMPANY AGREEMENT ("R&D FUNDING AGREEMENT")
The Investment Agreement also provides that Novartis will make certain
research funding available to the Company. This commitment was memorialized in a
Limited Liability Company Agreement between Novartis and the Company entered
into in December 1995. The R&D Funding Agreement provides that Novartis will
purchase interests in a limited liability company as a means of providing this
funding.
Under the R&D Funding Agreement, Novartis has agreed to fund research and
development expenses for certain projects (the "Funded Projects"), which
currently consist of certain adult and pediatric vaccines, Insulin-Like Growth
Factor-1, Factor VIII and HSV-tk. The Company may from time to time propose
additional projects which it wishes Novartis to fund or partially fund. In
exchange for providing the funding, Novartis has certain rights, as described
below, in certain adult and pediatric vaccines, Insulin-Like Growth Factor-1,
Factor VIII and HSV-tk (the "Products").
The amount of funding Novartis is obligated to provide under the R&D Funding
Agreement is subject to an aggregate limit. Aggregate funding is calculated as
total payments by Novartis to the Company under the R&D Agreement minus the
amount of any payments to or profits earned by Novartis in connection with the
Products. Currently, the aggregate funding limit is $250 million. At Chiron's
option, this may be increased to $300 million, in exchange for a reduction of
the maximum borrowing amount under the credit facilities guaranteed by Novartis.
See "Bank Debt Guarantee", above. In addition, Novartis' obligation is subject
to an annual funding limit in 1999 of $43,300,000. Subject to the foregoing
annual and aggregate limits, the R&D Agreement provides that, at Chiron's
request, Novartis will fund 100% of the development costs of the Funded Projects
incurred between January 1, 1995 and December 31, 1999. As of the end of fiscal
year 1998, the Company had used $206,700,000 of the R&D funding.
In consideration of the funding provided by Novartis for the Funded
Projects, Novartis has an interest in a stream of variable royalties in future
worldwide sales from Products, if any, which are successfully developed. (There
can be no assurance that any Products will be developed successfully.) Novartis
also has co-promotional rights, in countries other than in North America and
Europe, for certain adult vaccines. Under the R&D Agreement, the Company has the
right, but not the obligation, to buy out Novartis' interests in these Products
(including its interest in royalties as well as the co-promotion rights). The
purchase price for the buy-out is an amount equal to the aggregate amount of R&D
funding provided to the Company by Novartis under the R&D Agreement (again, net
of any payments to or profits earned by Novartis in connection with the
Products) together with interest on such amount at LIBOR. The purchase price for
the buy-out is payable in cash, or Common Stock, or a combination of the two. In
the event of a buy-out, Novartis will retain certain marketing rights with
respect to adult vaccines as to which it has then exercised its promotion
rights. Chiron must provide notice to Novartis by January 1, 2002 as to whether
it will exercise its buy-out right; if it does so, Chiron will have until
January 1, 2005 to tender the purchase price for the buy-out.
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THE COOPERATION AND COLLABORATION AGREEMENT
Novartis and the Company have also entered into the Cooperation and
Collaboration Agreement regarding research and development collaborations,
marketing and manufacturing arrangements, access of each party to the other
party's technology and reciprocal "most-favored nation" rights regarding certain
licenses. The agreement provides a mechanism by which either party may make
specific proposals for areas of research and development collaboration with the
other and retain a 90-day right of first negotiation with respect to such areas.
Neither the Company nor Novartis has the right to enter into any material
research and development collaboration related to the Company's strategic
mission with any third party if such third party's only material contribution to
the collaboration is expected to be funding, unless such party has first offered
the other party the opportunity to enter into such collaboration on the same
terms as such third party. These restrictions do not apply to collaborations
with non-commercial sources of funding, including grants, or to financing
arrangements with third parties in which the consideration to the third party is
the return on financing. In addition, under the Cooperation and Collaboration
Agreement, the parties have (i) a reciprocal right of first refusal with respect
to marketing certain products developed by the other party or which the other
party has the right to market and (ii) a reciprocal right of first negotiation
with respect to manufacturing certain products developed by the other party or
which the other party has the right to manufacture.
The first collaboration project between the Company and Novartis under the
Cooperation and Collaboration Agreement is in the field of combinatorial
chemistry. In November 1995, the Company and Novartis entered into a
collaboration agreement under which Novartis agreed to pay $26.0 million to
Chiron, over a five-year period and subject to certain adjustments, in exchange
for a non-exclusive, perpetual license to utilize Chiron's combinatorial
chemistry techniques. In addition, the parties agreed to collaborate to utilize
combinatorial chemistry technology to identify potential products in selected
target areas. The agreement also provides for research funding by Novartis, and
certain upfront, milestone and royalty payments, as well as product
commercialization rights for both parties. In 1998, the Company recorded $6.0
million of revenues under the terms of the agreement.
MARKET PRICE OPTION AGREEMENT
Under a Market Price Option Agreement between Chiron and an affiliate of
Novartis, the Company has granted to Novartis an option to purchase newly issued
shares of equity securities directly from the Company at fair market value. The
number of shares Novartis is permitted to purchase under the Market Price Option
Agreement is subject to the standstill restrictions set forth in the Governance
Agreement. See "Governance Agreement--Standstill". The option may be exercised
at any time and also may be exercised repeatedly (subject to a minimum purchase
of $1 million each time the option is exercised). Novartis may not exercise the
option unless at the time of the exercise it owns shares representing at least
30% of the aggregate number of votes entitled to be voted in an election of
directors of the Company. In addition, one of the following "exercise
conditions" must be satisfied: (i) Novartis is legally restricted from
purchasing equity securities from any person other than the Company (including
any restriction resulting from Novartis' possession of non-public material
information regarding the Company); (ii) there is insufficient liquidity in the
open market to permit Novartis to purchase the number of shares it desires,
either within the time period it desires or without unduly affecting the price
of the shares, or (iii) Novartis' ownership interest in the Company at that time
is below 50 percent and it wishes (and is permitted under then applicable
standstill provisions of the Governance Agreement) to increase its ownership
interest to above 50 percent (although if this is the only exercise condition
that is satisfied, Novartis is not permitted to purchase shares that would
increase its ownership interest above 51 percent).
SUBSCRIPTION AGREEMENT
Under a Subscription Agreement between Chiron and Novartis, the Company has
the right to require Novartis to purchase Common Stock directly from the Company
at fair market value, up to a maximum
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subscription amount. Currently, the subscription amount is $500 million. It will
be reduced by the aggregate amount paid by Novartis or any of its affiliates for
the purchase of equity securities from the Company or any of its subsidiaries,
whether pursuant to the Market Price Option Agreement, the Governance Agreement,
the Subscription Agreement or otherwise (other than securities purchased in
connection with a collaboration under the Cooperation and Collaboration
Agreement or securities issued under the R&D Funding Agreement). The
subscription amount will be reduced by any increase in the amount of credit
facilities guaranteed by Novartis, up to a maximum amount of $300 million. See
"The Investment Agreement--Bank Debt Guarantee". Novartis' obligation to
purchase shares pursuant to the Subscription Agreement is subject to the
satisfaction of certain closing conditions.
During fiscal year 1998, Novartis did not purchase any securities from the
Company pursuant to the Market Price Option Agreement, the Subscription
Agreement, or otherwise.
THE NOVEMBER 1996 AGREEMENT
In November 1996, in connection with the U.S. Federal Trade Commission's
review of the merger between Ciba and Sandoz Limited which created Novartis,
Chiron and Novartis entered into an agreement (the "November 1996 Agreement")
pursuant to which Chiron agreed to grant royalty-bearing licenses to
Rhone-Poulenc Rorer, Inc. and Novartis under certain Chiron patents relating to
gene therapy. As partial consideration, Novartis agreed to pay to the Company up
to an aggregate of $60 million over five years, of which $15 million was paid in
fiscal year 1998. Novartis also agreed to cross-license to the Company certain
Novartis-controlled gene therapy technologies.
In 1994 the Company entered into an agreement with Novartis under which the
Company agreed to promote Aredia-Registered Trademark- in the United States on
behalf of Novartis until March 1997. Under the November 1996 Agreement, the
parties agreed to renegotiate the Aredia-Registered Trademark- promotion
arrangement to allow the Company to co-promote Aredia-Registered Trademark- with
Novartis for a two-year period, following a six-month transition period. In
December 1997, the parties agreed that the Company would terminate its
co-promotion activities in April 1998. In fiscal year 1998, the Company
recognized $9.8 million in co-promotion and sales fees related to
Aredia-Registered Trademark-.
In addition, under the November 1996 Agreement, Novartis has agreed to
provide to the Company additional guarantees totaling $200 million to support
the issuance of non-convertible debt in the event Chiron elects to prepay
certain outstanding convertible debt.
SERVICES PROVIDED TO CHIRON DIAGNOSTICS
In connection with the acquisition by the Company of Chiron Diagnostics,
Novartis agreed to continue for a reasonable period to provide to Chiron
Diagnostics and its subsidiaries administrative and similar services and
incidental research and development services at cost. Use of Novartis' services
was expanded in those instances in which Novartis was determined to be the best
available source for a particular service, and phased out in those instances in
which more attractive alternative sources for a service were identified. In
fiscal year 1998, the Company paid Novartis $329,000 for certain services, which
consisted primarily of research and development services. On November 30, 1998
the Company sold Chiron Diagnostics to Bayer Corporation. Accordingly, the
Company will no longer continue to receive these services.
CASH PAYMENTS TO CERTAIN STOCK OPTION HOLDERS
Under the Investment Agreement, persons who on November 20, 1994 held
options under the Company's 1991 Stock Option Plan were granted the right to
receive certain cash payments from Novartis. The payments are calculated on the
spread between $29.25 and the exercise price of the option, and are payable on a
fraction (37.33%) of the options which vest each year. The right to receive the
payment vests over time as the underlying options vest and, once vested, is
exercisable at any time the option is
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outstanding. For options which vested during 1995, optionees received the cash
payment and were not required to surrender the underlying options. For options
which vest before or after 1995, in order to receive the payment, the optionee
is required to surrender the corresponding fraction (37.33%) of the underlying
options. If any such cash payments to executive officers, either alone or when
aggregated with other compensation, constitute an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code and/or would
subject such individuals to a tax under Section 4999 of the Internal Revenue
Code, the Company may pay the officers such additional amounts as are necessary
to assure that the net after-tax amount realized by the officers is the same as
if this additional tax were not imposed. In fiscal year 1998, Novartis paid
approximately $8.5 million to eligible option holders in connection with the
surrender for cancellation of such options and reimbursed the Company for
payroll taxes totaling approximately $384,446 associated with the payments.
OTHER ARRANGEMENTS WITH NOVARTIS
The Company and Novartis have entered into other product development and
other arrangements, directly and through affiliates. No such other arrangements,
either individually or in the aggregate, were material to the Company during
fiscal year 1998.
RELATIONSHIP WITH BIOS CHILE
In 1990, the Company entered into agreements with Bios Chile ("Bios"), a
Chilean biotechnology company in which Dr. Pablo D.T. Valenzuela, Senior Vice
President, Biologicals Research and Development, holds an ownership interest.
Dr. Bernardita Mendez, Vice President, who is married to Dr. Valenzuela, is the
daughter of the general manager of Bios. Under the agreements, as amended: (a)
Dr. Valenzuela will be permitted to contribute up to 20 percent of his work time
in any year to Bios; (b) Chiron acquired 19 percent of the outstanding stock of
Bios upon payment of $100,000, plus an option to acquire up to 50 percent of the
outstanding stock upon payment of an additional $100,000 to Bios; (c) Chiron
agreed to contribute equipment to Bios with a value of $250,000 in the first
year of the agreement and $50,000 a year for ten years thereafter; and (d)
Chiron agreed to pay a maximum of $25,000 per year for each of the next ten
years for reasonable costs and expenses incurred by Dr. Valenzuela while
performing services for Bios. In return, Bios agreed to perform research
services for Chiron valued at not less than $200,000 in the first year of the
agreement and $50,000 a year for ten years thereafter. The agreement between the
companies further contemplates the supply of certain biotechnological services
and supplies by Bios to Chiron having a value of no less than $100,000 in each
of the three years following its effective date. Chiron will have the right to
commercialize, outside Latin America, any product of Bios and Bios will have the
right to sell certain Chiron reagents for research purposes. In fiscal year
1998, the Company paid to Bios a total of $125,097 under various provisions of
the above-mentioned agreements and under a separate agreement to develop
protocols for the Company's former subsidiary, Chiron Diagnostics.
LOANS TO EXECUTIVE OFFICERS
In June 1998, the Company provided a loan of $1 million to Mr. Lance,
President and Chief Executive Officer, to acquire real property. The loan, which
is non-interest bearing, is secured by a primary deed of trust on the property.
Principal is payable in annual installments of $47,293 for a ten year period,
with the outstanding principal balance due in full on June 22, 2008. As of the
end of 1998, the amount outstanding on the loan to Mr. Lance was $1 million.
During 1998, the largest aggregate amount outstanding on the loan was $1
million.
Pursuant to the provisions of an executive loan program adopted by the Board
of Directors to promote stock ownership by executive officers ("Executive Loan
Program"), in June 1996 the Company provided a loan of $608,592 to Dr.
Valenzuela to enable him to purchase 202,864 shares of Chiron
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Common Stock through the exercise of a stock option. The outstanding principal
balance was repaid in full on June 5, 1998. During 1998, the highest amount
outstanding on the loan was $684,209.
In April 1996, the Company provided a loan of $150,000 to Rajen Dalal, Vice
President; President, Blood Testing Division, to acquire real property. The loan
has a fixed interest rate of 8.25 percent per annum and is due in full on or
prior to April 23, 2001. The loan is secured by a second deed of trust on the
property. As of the end of 1998, the amount outstanding on the loan to Mr. Dalal
was $162,375. During 1998, the highest amount of indebtedness outstanding on the
loan was $162,375.
CERTAIN EMPLOYMENT AGREEMENTS
Dr. Richard W. Barker entered into an agreement with the Company dated July
8, 1998. Dr. Barker served as President of Chiron Diagnostics until its sale to
Bayer Corporation on November 30, 1998 and assumed the position of Senior Vice
President, Corporate Development, of the Company following the sale. The July 8,
1998 agreement provides that Dr. Barker may resign within a reasonable
transition period following the sale of Chiron Diagnostics if he is not offered
the position of chief executive officer of the resulting diagnostics business.
In lieu of any other severance payment, Dr. Barker will receive $800,000 from
Chiron upon such termination of employment. If this $800,000 payment is made,
the restricted share rights granted to Dr. Barker upon his initial employment
with the Company will not vest. Dr. Barker has not been offered the position of
chief executive officer of the combined Chiron and Bayer diagnostics business.
Separately, on January 27, 1997, Dr. Barker entered into an agreement with the
Company which sets forth the terms of the grant of restricted share rights with
respect to 40,000 shares of the Company's Common Stock. The share rights vest on
June 14, 2001 if Dr. Barker remains employed with the Company through such date,
with provision for earlier pro rata vesting in the event that employment
terminates by reason of death or disability or if employment is terminated by
the Company other than for cause.
Mr. William G. Green, Senior Vice President, Secretary and General Counsel,
entered into an agreement with the Company in September 1990 which provides that
the Company will maintain life insurance for him in the amount of $500,000 and
that, in the event Mr. Green's contributions or premiums associated with health
or dental insurance exceed $4,500 in any year, the Company will pay the excess.
Mr. Sean P. Lance, President and Chief Executive Officer of the Company,
entered into an agreement with the Company dated March 18, 1998 which provides
(i) for a base salary of $700,000 per year, which may be increased, but not
decreased, annually by the Board of Directors; (ii) that Mr. Lance will
participate in the Company's executive officer variable cash compensation
program, under which he will receive a cash bonus equal to 100% of his base
salary if the targeted level of performance is satisfied, with a maximum bonus
of 200% if performance substantially exceeds the targeted level; (iii) that the
Company will provide Mr. Lance with the lease of a company car and tax and
financial services planning; (iv) that Mr. Lance will be granted options to
purchase 750,000 shares of the Company's Common Stock under the Company's 1991
Stock Option Plan, as to which 125,000 shares will vest upon the first annual
anniversary of Mr. Lance's employment with the Company, 475,000 shares will vest
in 48 successive equal monthly installments commencing on the first anniversary
of Mr. Lance's employment, and the remaining 150,000 option shares will vest on
the fifth annual anniversary of Mr. Lance's employment, provided that 75,000 of
the 150,000 may vest as early as the end of three years based upon attainment of
certain performance goals; (v) Mr. Lance will participate in the Company's
annual awards of long-term incentive compensation, presently awarded under the
1991 Stock Option Plan in the form of stock options, based upon performance as
determined by the Board's Compensation Committee with a targeted value of the
annual award at the grant date of 200% of Mr. Lance's base salary; (vi) the
Company will reimburse customary expenses associated with Mr. Lance's relocation
to California; and (vii) if Mr. Lance's employment with the Company is
terminated other than for cause, or if Mr. Lance resigns for good reason, he
will continue to receive (a) his base salary for three years following the
termination date, provided he may elect to receive a lump sum payment equal to
the discounted value of such salary; (b) in lieu of his cash bonus, a payment
equal to three times the higher of his targeted bonus in the year of termination
or his highest bonus during
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the preceding three years, payable over the salary continuation period or, at
Mr. Lance's option, in a discounted lump sum; (c) continued health care and life
insurance coverage for a three year period, subject to the payment by Mr. Lance
of premiums not paid by the Company under the Company's cafeteria benefit plan;
(d) reasonable repatriation assistance; and (e) accelerated vesting of stock
options that would otherwise have vested during the next three years following
termination. Under the agreement, "good reason" is defined to include a
substantial diminution in Mr. Lance's duties and responsibilities or the
assignment to Mr. Lance of duties inconsistent with his position; relocation of
the Company's headquarters more than 30 miles from its present location;
reduction of Mr. Lance's base salary or failure to provide compensation at least
equal to that provided for under compensation or benefit plans currently in
effect; material breach by the Company of its obligations under Mr. Lance's
employment agreement or the failure of the Company to obtain satisfactory
agreement from any successor to the Company to assume Mr. Lance's employment
agreement. The agreement further provides that no change in control, including
any transaction in which Novartis increases its ownership interest in the
Company, will itself constitute good reason. Pursuant to the March 1998
agreement, the Company provided Mr. Lance a loan in the principal amount of $1
million with a ten year term to purchase a residence. The agreement initially
provided that the loan would bear interest at the applicable federal rate as
defined in the Internal Revenue Code and would be forgiven over the period of
Mr. Lance's service to the Company at the rate of 0.83333% of the principal
amount thereof per month. In August 1998 the loan terms were amended. Under the
amended terms, the loan is non-interest bearing and the principal amount of the
loan is payable in annual installments of $47,293 over the life of the loan,
with the principal balance of approximately $527,068 payable at final maturity.
The provision for forgiveness of the loan has been eliminated. The Company has
agreed to pay to Mr. Lance a special annual bonus of $47,293.
Mr. Magnus Lundberg served as President, Chiron Vaccines and Therapeutics,
until his resignation in March 1999. During his employment with the Company, Mr.
Lundberg entered into agreements with the Company dated May 6, 1996, May 25,
1996, January 8, 1997, and March 17, 1998 which provided that (i) if Mr.
Lundberg's employment with the Company were terminated other than for cause, the
Company would pay to Mr. Lundberg severance pay equivalent to one year's salary
and benefits; (ii) the Company would provide Mr. Lundberg with a leased
automobile and would pay certain expenses associated with such automobile; and
(iii) the Company would provide to Mr. Lundberg a $3,000 monthly housing
allowance during the period he continued to hold his position.
Mr. James R. Sulat, Chief Financial Officer, entered into an agreement with
the Company dated March 19, 1998 which provides (i) for a base salary of
$300,000 per year; (ii) that Mr. Sulat will participate in the Company's
executive officer variable cash compensation program, under which he is entitled
to receive a cash bonus equal to 45% of his base salary if the targeted level of
performance is satisfied, with a maximum bonus of 90% if performance
substantially exceeds the targeted level; (iii) that Mr. Sulat will be granted
options to purchase 150,000 shares of the Company's Common Stock under the
Company's 1991 Stock Option Plan, as to which 25,000 option shares will vest on
the first annual anniversary of Mr. Sulat's employment with the Company, 75,000
option shares will vest ratably monthly thereafter for 36 months, and 50,000
option shares will vest on the fifth annual anniversary of Mr. Sulat's
employment; (iv) Mr. Sulat will be eligible to receive future grants of stock
options under the Company's long-term incentive plan based upon individual,
function and corporate performance; (v) if, within the first two years, Mr.
Sulat's employment with the Company is terminated other than for cause, or if
Mr. Sulat resigns for good reason, he will receive a minimum lump sum severance
payment equal to the greater of one year's salary (declining in equal monthly
increments to six months' base salary over the one year period commencing at the
end of six months' employment with the Company) or the payment to which he would
otherwise be entitled under any then effective Company severance plan, and
accelerated vesting of that number of shares underlying his initial stock option
grant that otherwise would have vested during the fraction of one year following
his termination equal to the fraction of one year's base salary paid to him as
severance; and (vi) if Mr. Sulat's employment is involuntarily terminated by the
Company or its successor without cause within one year following a buyout
transaction by Novartis, he will receive a minimum lump sum severance payment
equal
25
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to the greater of one year's base salary or the payment to which he would
otherwise be entitled under any then effective Company severance plan and full
acceleration of the vesting of his initial stock option grant. Under the
agreement, "good cause" is defined to include a substantial diminution in Mr.
Sulat's duties and responsibilities; reduction of Mr. Sulat's base salary or
failure to provide compensation and benefits at least equal to those provided
generally to senior officers; a material breach by the Company of its
obligations under Mr. Sulat's employment agreement or the failure of the Company
to obtain satisfactory agreement from any successor to the Company to assume Mr.
Sulat's employment agreement. The agreement further provides that no change in
control, including any transaction in which Novartis increases its ownership
interest in the Company, will itself constitute good reason.
On January 27, 1998, Dr. Lewis T. Williams, Chief Scientific Officer and
President, Chiron Technologies, entered into an agreement with the Company which
provides that if Dr. Williams' employment with the Company is terminated other
than for cause, the Company will pay to Dr. Williams a lump sum equal to three
times his then existing base salary. The agreement further provides that any
material reduction in Dr. Williams' compensation or in the scope of his
authority and responsibility that is not reasonably acceptable to Dr. Williams
will be treated as constructive termination entitling Dr. Williams to this
severance payment. This lump sum severance agreement supercedes and replaces
certain options granted to Dr. Williams pursuant to the Company's letter
agreement with Dr. Williams dated July 15, 1994 to establish a research program
in the event the Company terminated Dr. Williams' employment other than for
cause. Under the January 1998 agreement, Dr. Williams was also granted
restricted share rights with respect to 100,000 shares of the Company's Common
Stock. The share rights vest in December 2002, with earlier full vesting upon a
change in control of the Company (other than by reason of an increase in
Novartis' ownership interest), and earlier pro rata vesting in the event Dr.
Williams' employment is terminated by the Company without cause or upon
termination of employment due to death or permanent disability (based on the
actual number of months worked after December 1997 plus, in the case of
termination without cause, 36 months).
PENSION AGREEMENTS
The Company has entered into supplemental pension agreements with two Named
Executive Officers: Mr. William G. Green and Dr. William J. Rutter.
Mr. Green's supplemental pension agreement is a monthly benefit for life
beginning at age 60. The benefit is based on an initial contribution of
$110,000, plus an annual contribution for each year of service until Mr. Green
reaches age 60, such that the annual contribution when added to the maximum
employee and Company matching contribution under the Company's 401(k) Plan and
any future retirement benefit will not be less than $20,000. This amount will be
increased by an assumed seven percent interest rate compounded annually. Taking
into account certain assumptions about Internal Revenue Code limitations, and
assuming Mr. Green makes the maximum 401(k) contribution under the Chiron 401(k)
Plan, and receives the maximum matching contribution each year, the actuarial
equivalent of Mr. Green's benefit at age 65 would be $48,921 annually for life.
In 1989, the Company entered into a supplemental benefits agreement with Dr.
William J. Rutter, Chairman of the Board, under the terms of which the Company
agreed to indemnify Dr. Rutter, up to an amount of $10,000 in any twelve-month
period, for any University of California pension benefits he loses by reason of
his change in status with the University from full-time to part-time. In 1996,
under the terms of the Agreement, the Company paid Dr. Rutter $72,496, including
interest, for the years 1991 through 1996, and in each of 1997 and 1998 the
Company paid Dr. Rutter $10,000. The Company will continue to pay Dr. Rutter
$10,000 per year after 1996 during his lifetime.
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DIRECTOR INDEMNIFICATION AGREEMENTS
The Company has indemnification agreements with directors that (i) confirm
the present indemnity provided to them by the Company's Bylaws and give them
assurances that this indemnity will continue to be provided despite future
changes in the Bylaws and (ii) provide that, in addition, the directors shall be
indemnified to the maximum extent permitted by law against all expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
or paid by them in any action or proceeding, including any action by or in the
right of the Company, on account of their service as a director, officer or
similar official of any other company or enterprise when they are serving in
such capacities at the request of the Company. The indemnification agreements
further provide that expenses incurred by a director in such cases shall be paid
by the Company in advance, subject to the director's obligation to reimburse the
Company in the event it is ultimately determined that the director is not
entitled to be indemnified for such expenses under any of the provisions of the
indemnification agreement. However, no indemnity will be provided to any
director under the agreements as described in clause (ii) of the first sentence
of this paragraph on account of conduct which is finally adjudged to be
knowingly fraudulent, deliberately dishonest, or to constitute willful
misconduct. In addition, no indemnification will be provided if a final court
adjudication shall determine that such indemnification is not lawful, or in
respect of any suit in which judgment is rendered against a director for an
accounting of profits made from a purchase or sale of securities of the Company
in violation of Section 16(b) of the Exchange Act or of any similar statutory
provision, or on account of any remuneration paid to a director which is finally
adjudged to have been paid in violation of law. The indemnification agreements
also contain provisions designed to protect the Company from unreasonable
settlements or redundant legal expenditures.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10 percent of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and to
furnish copies of such reports to the Company.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file reports on Form 5 for 1998, the Company believes that
all its officers and directors complied with all filing requirements applicable
to them with respect to transactions during 1998, except that Dr. Strijkert
filed a Form 4 two months after the surrender of options to acquire 1,720 shares
of Common Stock to Novartis for cash. See "Cash Payments to Certain Stock Option
Holders".
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered for inclusion in the
Company's Proxy Statement for next year's Annual Meeting of Stockholders must be
received at the Company's principal executive office by December 2, 1999. Such
proposals may be included in next year's Proxy Statement if they comply with
certain rules and regulations promulgated by the Securities and Exchange
Commission.
Stockholder proposals intended to be considered at this year's Annual
Meeting received at the Company's principal executive office after February 22,
1999 will be considered untimely in accordance with Securities and Exchange
Commission Rule 14a-5(e)(2). Proxy holders will vote in their discretion with
respect to any such matter that may properly come before the Annual Meeting,
absent contrary instructions.
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OTHER BUSINESS
The Board of Directors is not aware of any other matter that may be
presented for action at the Annual Meeting. In the event that any other matter
requiring a vote of the stockholders is presented for action at the Annual
Meeting, the enclosed proxy card gives authority to the persons listed on the
card to vote at their discretion in the best interest of the Company.
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Company has chosen again this year to print summary financial
information for fiscal year 1998 in its 1998 Annual Report, a copy of which is
enclosed with this proxy material. The full audited consolidated financial
statements of the Company and its subsidiaries and other required financial
disclosures appear in the Company's Annual Report on Form 10-K for 1998, which
accompanies the Annual Report.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ WILLIAM G. GREEN
William G. Green,
SECRETARY
April 1, 1999
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<PAGE>
CHIRON CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, MAY 13, 1999
10:00 a.m.
1450 53rd STREET
EMERYVILLE, CA 94608
CHIRON CORPORATION
4560 HORTON STREET, EMERYVILLE, CA 94608 PROXY
- - -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
By signing this proxy, you appoint Sean P. Lance and William J. Rutter, and
each of them, with full power of substitution, to vote all shares of Common
Stock of Chiron Corporation which you are entitled to vote at the Annual
Meeting and any adjournments or postponements thereof.
This proxy will be voted as you specify on the reverse. IF NO CHOICE IS
SPECIFIED, THIS PROXY WILL BE VOTED "FOR" ALL NOMINEES LISTED IN ITEM 1 AND
"FOR" ITEM 2.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
Please detach here
- - -------------------------------------------------------------------------------
Share Amounts
- - -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES LISTED IN ITEM 1
AND "FOR" ITEM 2.
<TABLE>
<S> <C> <C> <C> <C>
1. Election of directors: 01 Lewis W. Coleman 02 Paul L. Herrling / / Vote FOR / / Vote WITHHELD
03 William J. Rutter 04 Jack W. Schuler all nominees from all nominees
05 Raymund Breu
_______________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, /______________________________/
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
2. Proposal to ratify the selection of KPMG LLP as independent / / For / / Against / / Abstain
auditors for the Company for fiscal year ending December 31, 1999.
3. In their discretion, the proxy holders are authorized to vote upon such
other business that may properly come before the meeting or any
adjournments or postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS
GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box / /
Indicate changes below: Date ______________________________
- - -------------------------------------------
ADDRESS AREA _______________________________
/______________________________/
Signature(s) in Box
- - -------------------------------------------
Please sign exactly as your name appears on this proxy card. If your shares
are held in joint tenancy, both persons should sign. If your shares are held
by a corporation or partnership, please sign in full name of corporation or
partnership by authorized person and provide the name and title of person
signing the proxy. When signing as a trustee, administrator, guardian,
executor or attorney, please include your title.
- - ----------------------------------------------------------------------
Proxy # Account # Issue or Issuer #
</TABLE>
