<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
Commission File Number: 0-12798
__CHIRON CORPORATION__
(Exact name of registrant as specified in its charter)
DELAWARE 94-2754624
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4560 HORTON STREET, EMERYVILLE, CALIFORNIA 94608
(Address of principal executive offices) (Zip code)
(510) 655-8730
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
TITLE OF CLASS OUTSTANDING AT JULY 31, 1999
<S> <C>
Common Stock, $0.01 par value 180,978,200
</TABLE>
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- --------------------------------------------------------------------------------
<PAGE>
CHIRON CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
-------------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31,
1998......................................................................... 3
Condensed Consolidated Statements of Operations for the three and six months
ended June 30, 1999 and 1998................................................. 4
Condensed Consolidated Statements of Comprehensive Income for the three and
six months ended June 30, 1999 and 1998...................................... 5
Condensed Consolidated Statements of Cash Flows for the six months ended June
30, 1999 and 1998............................................................ 6
Notes to Condensed Consolidated Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................................................. 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............. 27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................................... 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................... 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................ 28
SIGNATURES........................................................................ 31
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CHIRON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 47,534 $ 513,315
Short-term investments in marketable debt securities.............. 725,290 716,619
------------- --------------
Total cash and short-term investments........................... 772,824 1,229,934
Accounts receivable............................................... 179,286 167,588
Inventories....................................................... 93,233 79,862
Other current assets.............................................. 91,960 153,558
------------- --------------
Total current assets............................................ 1,137,303 1,630,942
Noncurrent investments in marketable debt securities................ 706,702 360,069
Property, plant, equipment, and leasehold improvements, at cost:
Land and buildings................................................ 140,713 141,452
Laboratory, production, and office equipment...................... 296,082 236,803
Leasehold improvements............................................ 67,293 84,607
Construction-in-progress.......................................... 34,041 38,321
------------- --------------
538,129 501,183
Less accumulated depreciation and amortization.................... (218,438) (198,102)
------------- --------------
Net property, plant, equipment, and leasehold improvements...... 319,691 303,081
Purchased technology, net........................................... 13,090 14,753
Other intangible assets, net........................................ 146,017 167,534
Investments in equity securities and affiliated companies........... 35,086 27,456
Other assets........................................................ 42,711 20,429
------------- --------------
$ 2,400,600 $ 2,524,264
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 46,451 $ 44,833
Accrued compensation and related expenses......................... 41,672 40,727
Short-term borrowings............................................. 25,445 17,554
Note payable to Novartis.......................................... 65,945 63,945
Current portion of unearned revenue............................... 42,321 41,893
Taxes payable..................................................... 24,525 180,536
Other current liabilities......................................... 134,588 167,947
------------- --------------
Total current liabilities....................................... 380,947 557,435
Long-term debt...................................................... 349,145 338,158
Other noncurrent liabilities........................................ 61,880 82,869
------------- --------------
Total liabilities............................................... 791,972 978,462
------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock...................................................... 1,815 1,799
Additional paid-in capital........................................ 2,010,737 1,979,615
Accumulated deficit............................................... (382,625) (437,873)
Accumulated other comprehensive (loss) income..................... (14,553) 2,261
Treasury stock, at cost (329,500 shares).......................... (6,746) --
------------- --------------
Total stockholders' equity...................................... 1,608,628 1,545,802
------------- --------------
$ 2,400,600 $ 2,524,264
------------- --------------
------------- --------------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THIS STATEMENT.
3
<PAGE>
CHIRON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net............................................. $ 101,322 $ 96,058 $ 194,289 $ 165,278
Equity in earnings of unconsolidated joint businesses.......... 17,048 17,364 35,134 30,238
Collaborative agreement revenues............................... 18,736 24,432 41,161 48,832
Royalty and license fee revenues............................... 27,335 15,495 59,768 31,569
Other revenues................................................. 24,669 9,541 34,318 20,260
---------- ---------- ---------- ----------
Total revenues............................................... 189,110 162,890 364,670 296,177
---------- ---------- ---------- ----------
Expenses:
Cost of sales.................................................. 40,759 45,186 84,635 73,399
Research and development....................................... 73,806 66,088 141,259 128,890
Selling, general, and administrative........................... 45,153 38,664 86,815 62,788
Write-off of purchased in-process technologies................. -- 1,645 -- 1,645
Restructuring and reorganization charges (Note 3).............. -- (2,610) 3,352 4,938
Other operating expenses....................................... 510 3,755 4,693 4,963
---------- ---------- ---------- ----------
Total expenses............................................... 160,228 152,728 320,754 276,623
---------- ---------- ---------- ----------
Income from operations........................................... 28,882 10,162 43,916 19,554
Gain on sale of assets........................................... -- 6,241 -- 6,241
Interest expense................................................. (5,863) (6,049) (11,708) (12,629)
Other income, net................................................ 20,816 7,566 43,376 16,161
---------- ---------- ---------- ----------
Income from continuing operations before income taxes............ 43,835 17,920 75,584 29,327
Provision (benefit) for income taxes............................. 10,101 (2,182) 18,112 1,683
---------- ---------- ---------- ----------
Income from continuing operations................................ 33,734 20,102 57,472 27,644
---------- ---------- ---------- ----------
Discontinued operations (Note 2):
Income (loss) from discontinued operations..................... -- 5,285 -- (13,108)
Gain on disposal of discontinued operations.................... 3,009 -- 3,009 65,332
---------- ---------- ---------- ----------
Net income....................................................... $ 36,743 $ 25,387 $ 60,481 $ 79,868
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic earnings per share:
Income from continuing operations.............................. $ 0.19 $ 0.11 $ 0.32 $ 0.16
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income..................................................... $ 0.20 $ 0.14 $ 0.33 $ 0.45
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted earnings per share:
Income from continuing operations.............................. $ 0.18 $ 0.11 $ 0.31 $ 0.15
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income..................................................... $ 0.20 $ 0.14 $ 0.33 $ 0.44
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THIS STATEMENT.
4
<PAGE>
CHIRON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income............................................................ $ 36,743 $ 25,387 $ 60,481 $ 79,868
--------- --------- --------- ---------
Other comprehensive income (loss):
Foreign currency translation adjustment:
Change in foreign currency translation adjustment during the
period.......................................................... (5,371) 1,430 (22,246) (983)
Plus: reclassification adjustment for loss included in
discontinued operations......................................... -- -- -- 2,087
--------- --------- --------- ---------
Net foreign currency translation adjustment....................... (5,371) 1,430 (22,246) 1,104
--------- --------- --------- ---------
Unrealized gains (losses) from investments:
Unrealized holding gains (losses) arising during the period......... 5,639 (10,244) 6,422 (4,935)
Reclassification adjustment for net gain included in net income net
of tax (provision) benefit of ($238) and $357 for the three months
ended June 30, 1999 and 1998, respectively, and $557 and $1,371
for the six months ended June 30, 1999 and 1998, respectively..... 423 (635) (990) (2,435)
--------- --------- --------- ---------
Net unrealized gains (losses) from investments...................... 6,062 (10,879) 5,432 (7,370)
--------- --------- --------- ---------
Other comprehensive income (loss)..................................... 691 (9,449) (16,814) (6,266)
--------- --------- --------- ---------
Comprehensive income.................................................. $ 37,434 $ 15,938 $ 43,667 $ 73,602
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THIS STATEMENT.
5
<PAGE>
CHIRON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
------------- -----------
<S> <C> <C>
Net cash (used in) provided by operating activities................................... $ (125,246) $ 46,698
------------- -----------
Cash flows from investing activities:
Purchases of investments in marketable debt securities.............................. (1,034,474) (222,316)
Proceeds from sale and maturity of investments in marketable debt securities........ 684,708 127,620
Capital expenditures................................................................ (42,350) (35,548)
Proceeds from disposal of discontinued operations................................... 35,425 298,939
Proceeds from sale of assets........................................................ -- 18,482
Business acquired, net of cash acquired............................................. -- (54,770)
Other, net.......................................................................... (15,538) (7,084)
------------- -----------
Net cash (used in) provided by investing activities............................... (372,229) 125,323
------------- -----------
Cash flows from financing activities:
Net proceeds from (repayment of) short-term debt.................................... 8,115 (137,025)
Repayment of notes payable and capital leases....................................... (1,193) (1,319)
Proceeds from issuance of common stock.............................................. 31,518 25,960
Payments to acquire treasury stock.................................................. (6,746) --
------------- -----------
Net cash provided by (used in) financing activities............................... 31,694 (112,384)
------------- -----------
Net (decrease) increase in cash and cash equivalents.............................. (465,781) 59,637
Cash and cash equivalents at beginning of the period.................................. 513,315 98,483
------------- -----------
Cash and cash equivalents at end of the period........................................ $ 47,534 $ 158,120
------------- -----------
------------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THIS STATEMENT.
6
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information presented in the accompanying Condensed Consolidated
Financial Statements at June 30, 1999, and for the three and six months ended
June 30, 1999 and 1998, is unaudited, but includes all normal recurring
adjustments which the management of Chiron Corporation ("Chiron" or the
"Company") believes to be necessary for fair presentation of the periods
presented. For the three and six months ended June 30, 1999, the Company's
results include a $6.4 million reduction in other operating expenses resulting
from a change in estimated tax accruals related to certain employee payments
recorded in 1995 in connection with the Novartis transaction and a $3.0 million
adjustment to the gain on disposal of discontinued operations resulting from a
change in estimated accruals created at the time of disposal. For the three and
six months ended June 30, 1998, included in the Company's results were a $6.0
million reduction in cost of sales due to a change in estimated property tax
accruals created in prior periods, a $3.6 million reduction in restructuring and
reorganization charges due to a revised estimate of property and other
tax-related accruals recorded in 1995 in connection with the idling of the
Puerto Rico facility, and a $2.0 million reduction in selling, general, and
administrative expenses due to changes in estimated accruals created in prior
periods.
During the second quarter of 1999, the Company completed the implementation
of an integrated information system. As a result, certain previously reported
amounts have been reclassified to conform with the current period presentation.
The condensed consolidated balance sheet amounts at December 31, 1998 have been
derived from audited financial statements. Interim results are not necessarily
indicative of results for a full year. This information should be read in
conjunction with Chiron's audited consolidated financial statements for the year
ended January 3, 1999, which are included in the Annual Report on Form 10-K
filed by the Company with the Securities and Exchange Commission.
In the first quarter of 1998, Chiron completed the sale of its ophthalmics
business ("Chiron Vision") to Bausch & Lomb Incorporated ("B&L") and in the
fourth quarter of 1998, Chiron completed the sale of its IN VITRO diagnostics
business ("Chiron Diagnostics") to Bayer Corporation ("Bayer") (see Note 2). The
accompanying Condensed Consolidated Statements of Operations for the three and
six months ended June 30, 1998 reflect the after-tax results of Chiron
Diagnostics as discontinued operations.
On March 31, 1998, in an acquisition accounted for under the purchase method
of accounting, Chiron acquired the remaining 51% interest in Chiron Behring GmbH
& Co ("Chiron Behring") from Hoechst AG. Beginning in the second quarter of
1998, the results of Chiron Behring were consolidated with those of the Company.
Prior to January 1999, the results of Chiron's Italian subsidiary ("Chiron
S.p.A.") were reported on a one-month lag. In the first quarter of 1999, the
results of Chiron S.p.A. were brought current. As a result, during the first
quarter of 1999, the Company recorded a loss of approximately $5.2 million for
the month of December 1998 as a component of "Accumulated deficit" in the
accompanying Condensed Consolidated Balance Sheets.
FISCAL YEAR
Effective with the beginning of fiscal year 1999, the Company changed its
fiscal year from a 52 or 53-week year ending on the Sunday nearest the last day
in December to coincide with a calendar year
7
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ending on December 31. In 1998, the Company's fiscal year was a 53-week year
ending on January 3, 1999 and the second fiscal quarter was a 13-week period
ending on June 28, 1998. For presentation purposes, the 1998 dates used in the
condensed consolidated financial statements and notes refer to the fiscal
month-end.
INVENTORIES
Inventories are stated at the lower of cost or market using the moving
weighted-average cost method as of June 30, 1999. For the period ending December
31, 1998, vaccine inventories were valued using the last-in, first-out ("LIFO")
method. In the second quarter of 1999, the Company changed its inventory
valuation methodology for vaccine inventories from LIFO to the moving
weighted-average cost method. The effect of this change in methodology was not
material to the financial statements. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Finished goods....................................................... $ 11,708 $ 12,301
Work-in-process...................................................... 62,126 54,333
Raw materials........................................................ 19,399 13,228
--------- ------------
$ 93,233 $ 79,862
--------- ------------
--------- ------------
</TABLE>
INCOME TAXES
The 1999 estimated annual tax provision is expected to be approximately 24%
of pretax income from continuing operations. The provision may be affected in
future periods by changes in management's estimates with respect to the
Company's deferred tax assets and other items affecting the overall tax rate.
Income tax expense for the three and six months ended June 30, 1998 was based on
an actual year-to-date effective tax rate on pretax income from continuing
operations of approximately 6%, after taking into account federal deferred tax
assets recognized and the tax impact attributable to restructuring and the sale
of the Puerto Rico facility. The actual 1998 annual effective tax rate of 20%
reflects the recognition of the deferred tax assets that were recognized during
the second half of 1998 resulting from a reduction in the valuation allowance
associated with such assets.
PER SHARE DATA
Basic earnings per share is based upon the weighted-average number of common
shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares could result from (i) the assumed
exercise of outstanding stock options, warrants, and equivalents, which are
included under the treasury-stock method; and (ii) performance units to the
extent that dilutive shares are assumed issuable.
8
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation for basic and diluted
earnings per share for the three and six months ended June 30 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted-average common shares outstanding............................ 181,585 177,308 181,064 176,725
Effect of dilutive securities:
Options and equivalents............................................. 2,996 2,585 3,578 2,703
Warrants............................................................ 223 187 239 188
--------- --------- --------- ---------
Weighted-average common shares outstanding plus assumed conversions... 184,804 180,080 184,881 179,616
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
For the three months ended June 30, 1999 and 1998, options to purchase
6,685,000 and 13,500,000 shares, respectively, and for the six months ended June
30, 1999 and 1998, options to purchase 3,786,000 and 13,456,000 shares,
respectively, with exercise prices greater than the average market prices of
common stock, were excluded from the respective computations of diluted earnings
per share as their inclusion would be antidilutive.
Also excluded from the computations of dilutive earnings per share were
12,026,000 shares of common stock issuable upon conversion of the Company's
convertible subordinated debentures as the average conversion price was greater
than the average market price for the three and six months ended June 30, 1999
and 1998.
NOTE 2--DISCONTINUED OPERATIONS
On December 29, 1997, Chiron completed the sale of all of the outstanding
capital stock of Chiron Vision to B&L for approximately $300.0 million in cash,
subject to certain post-closing adjustments. The sale was completed under the
terms of a Stock Purchase Agreement (the "B&L Agreement"), dated as of October
21, 1997, between Chiron and B&L. Chiron Vision's cash and cash equivalents
totaling $2.7 million, certain Chiron Vision real estate assets (the "real
estate assets") with a carrying value of $25.1 million and Chiron Vision's
future noncancelable operating lease costs totaling $1.1 million were retained
by the Company upon the completion of the sale. The Company has provided
customary indemnities under the terms of the B&L Agreement.
For a period of three years following the completion of the sale, Chiron
Vision has the right to use a portion of the real estate assets, which were
occupied at closing, on a rent-free basis. As of June 30, 1999 and December 31,
1998, the real estate assets, which represent all of the remaining net assets of
Chiron's discontinued operations, are recorded in the accompanying Condensed
Consolidated Balance Sheets as "Other current assets" (see Note 7).
On November 30, 1998, Chiron completed the sale of its IN VITRO diagnostics
business to Bayer for $1,013.8 million in cash, subject to certain post-closing
adjustments. The sale was completed under the terms of a Stock Purchase
Agreement (the "Bayer Agreement"), dated as of September 17, 1998, between
Chiron and Bayer. The results of operations for Chiron Diagnostics are reported
as a discontinued
9
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 2--DISCONTINUED OPERATIONS (CONTINUED)
operation for the three and six months ended June 30, 1998 in the accompanying
Condensed Consolidated Statements of Operations. Chiron has provided customary
indemnities under the terms of the Bayer Agreement.
For the three and six months ended June 30, 1998, Chiron Diagnostics
recognized total revenues of $142.7 million and $278.3 million, respectively.
For the three and six months ended June 30, 1998, "Income (loss) from
discontinued operations" are reported net of income tax provisions of $4.0
million and $2.9 million, respectively. For the three months ended June 30, 1999
and for the six months ended June 30, 1999 and 1998, "Gain on disposal of
discontinued operations" are reported net of income tax (benefits) provisions of
($0.7) million; ($0.7) million and $31.2 million, respectively.
For the three months ended June 30, 1999, basic and diluted income per
common share from discontinued operations was $0.01 and $0.02, respectively. For
the three months ended June 30, 1998, basic and diluted income per common share
was $0.03. For the six months ended June 30, 1999, basic and diluted income per
common share from discontinued operations was $0.01 and $0.02, respectively. For
the six months ended June 30, 1998, basic and diluted income per common share
from discontinued operations was $0.29.
NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES
In the first half of 1999, the Company recorded restructuring and
reorganization charges of $3.4 million principally related to the continued
integration of its worldwide vaccine operations. These charges primarily
consisted of termination and other employee-related costs recognized in
connection with the elimination of 28 positions in the Company's Italian
manufacturing facility. As of June 30, 1999, 11 of these 28 positions had been
eliminated.
In fiscal year 1998, the Company recorded restructuring and reorganization
charges of $26.8 million, of which $4.9 million was recognized in the first half
of the year. In the second quarter of 1998, the Company recognized a benefit of
$3.6 million related to a revised estimate of property and other tax-related
accruals recorded in 1995 in connection with the idling of the Puerto Rico
facility, offset in part, by $1.0 million of other facility and lease
termination costs. The $26.8 million charge consisted primarily of termination
and other employee-related expenses recognized in connection with the
elimination of 400 positions in manufacturing, research and development, sales,
marketing, and other administrative functions, and facility-related costs. As of
June 30, 1999, 311 of these 400 positions had been eliminated.
10
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 3--RESTRUCTURING AND REORGANIZATION CHARGES (CONTINUED)
The current status of the accrued restructuring charges is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
RESTRUCTURING AMOUNT OF AMOUNT AMOUNT TO
ACCRUAL TOTAL UTILIZED BE UTILIZED
DECEMBER 31, RESTRUCTURING THROUGH JUNE IN FUTURE
1998 CHARGE 30, 1999 PERIODS
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Employee-related costs................................... $ 15,390 $ 2,826 $ 8,631 $ 9,585
Other facility-related costs............................. 3,931 526 1,942 2,515
------------- ------ ------------ -----------
19,321 3,352 10,573 12,100
Discontinued operations.................................. 4,475 -- 2,569 1,906
------------- ------ ------------ -----------
$ 23,796 $ 3,352 $ 13,142 $ 14,006
------------- ------ ------------ -----------
------------- ------ ------------ -----------
</TABLE>
The liabilities related to restructuring and reorganization charges are
expected to be substantially settled within 12 months of accruing the related
charges.
NOTE 4--AGREEMENT WITH HOECHST AG
Effective July 1, 1996, Chiron purchased a 49% interest in the human vaccine
business of Behringwerke AG, a subsidiary of Hoechst AG. The total acquisition
price, which was paid in cash, was approximately $120.0 million, including costs
directly related to the acquisition. Of the acquisition price, approximately
$97.0 million was allocated to various intangible assets such as goodwill,
trademarks, and patents, and is being amortized on a straight-line basis over
lives ranging from five to 20 years.
From July 1, 1996 through March 31, 1998 (period of joint ownership), Chiron
and Hoechst AG operated the vaccine business as a joint venture under the name
Chiron Behring GmbH & Co. Chiron accounted for its 49% interest under the equity
method and recognized revenues of $2.4 million as a component of "Equity in
earnings of unconsolidated joint businesses" in the accompanying Condensed
Consolidated Statements of Operations for the six months ended June 30, 1998.
In the second quarter of 1998, in an acquisition accounted for under the
purchase method of accounting, Chiron acquired the remaining 51% interest in
Chiron Behring from Hoechst AG. The purchase price of approximately $113.1
million, including acquisition costs, was allocated to the acquired assets and
liabilities assumed based upon their estimated fair value on the date of
acquisition. In connection with the acquisition, liabilities assumed were as
follows (in thousands):
<TABLE>
<S> <C>
Cash acquired.................................................. $ 57,119
Fair value of all other assets acquired........................ 206,922
Carrying value of original investment in Chiron Behring........ (117,157)
Cash paid...................................................... (111,889)
Acquisition costs.............................................. (1,180)
-----------
Liabilities assumed............................................ $ 33,815
-----------
-----------
</TABLE>
11
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 4--AGREEMENT WITH HOECHST AG (CONTINUED)
At the time of acquisition, Chiron expensed $1.6 million of purchased
in-process technologies. Other purchased intangible assets of approximately
$135.0 million, including goodwill, trademarks, patents, and customer list, are
being amortized over their estimated useful lives of four to 17 years on a
straight-line basis. Chiron Behring's operating results were included in
Chiron's consolidated operating results beginning in the second quarter of 1998.
The following unaudited pro forma information presents the results of
continuing operations of Chiron and Chiron Behring for the six months ended June
30, 1998 with pro forma adjustments as if Chiron's acquisition of the remaining
51% interest in Chiron Behring had been consummated as of January 1, 1998. The
pro forma information does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or of results that may
occur in the future. The unaudited pro forma information is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
-----------------
<S> <C>
Total revenues............................................................. $ 330,138
Income from continuing operations.......................................... $ 31,457
Pro forma income per share from continuing operations:.....................
Basic.................................................................... $ 0.18
Diluted.................................................................. $ 0.18
</TABLE>
NOTE 5--SEGMENT INFORMATION
Chiron is organized based on the products and services that it offers. Under
this organizational structure, the Company has the following three reportable
segments: (i) biopharmaceuticals, (ii) vaccines, and (iii) blood testing. The
biopharmaceuticals segment consists of products and services related to
therapeutics, with an emphasis on oncology, serious infectious diseases, and
cardiovascular diseases as well as the development and acquisition of
technologies related to recombinant technology, gene therapy, small molecule
therapeutics, and genomics. The vaccines segment consists principally of
products and services related to adult and pediatric vaccines sold primarily in
Germany, Italy, and certain other international markets. The blood testing
segment consists of an alliance with Gen-Probe Incorporated ("Gen-Probe") and
Chiron's one-half interest in the pretax operating earnings of its joint
business with Ortho-Clinical Diagnostics, Inc. ("Ortho"), a Johnson & Johnson
company. Chiron's alliance with Gen-Probe is focused on developing and selling
products using nucleic acid testing ("NAT") to screen blood and plasma for
infection by viruses. Chiron's joint business with Ortho sells a line of
immunodiagnostics, other than NAT tests required to screen blood for hepatitis
viruses and retroviruses, and provides supplemental tests and microplate-based
instrument systems to automate test performance and data collection.
Certain revenues and expenses, particularly Novartis research and
development funding, certain royalty revenues, and unallocated corporate
expenses, are not viewed by management as belonging to any one reportable
segment. As a result, these items have been aggregated into an "Other" segment,
as permitted by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131").
12
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 5--SEGMENT INFORMATION (CONTINUED)
The accounting policies of the Company's reportable segments are the same as
those described in Note 1--The Company and Summary of Significant Accounting
Policies. Chiron evaluates the performance of its segments based on each
segment's income (loss) from operations, excluding certain special items, such
as the write-off of purchased in-process technologies and restructuring and
reorganization charges, which are shown as reconciling items in the table below.
The following segment information excludes all significant intersegment
transactions as these transactions are eliminated for management reporting
purposes (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES
Biopharmaceuticals, includes equity in earnings of unconsolidated
joint businesses of ($33) for the three and six months ended June
30, 1998......................................................... $ 87,914 $ 69,810 $ 155,655 $ 153,095
Vaccines, includes equity in earnings of unconsolidated joint
businesses of $401 and ($647) for the three months ended June 30,
1999 and 1998, respectively, and $644 and $789 for the six months
ended June 30, 1999 and 1998, respectively....................... 47,707 53,233 104,181 70,078
Blood testing, includes equity in earnings of unconsolidated joint
businesses of $16,647 and $18,044 for the three months ended June
30, 1999 and 1998, respectively, and $34,490 and $29,482 for the
six months ended June 30, 1999 and 1998, respectively............ 26,021 24,247 50,651 41,404
Other.............................................................. 27,468 15,600 54,183 31,600
---------- ---------- ---------- ----------
Total revenues....................................................... $ 189,110 $ 162,890 $ 364,670 $ 296,177
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
13
<PAGE>
CHIRON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 5--SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
<S> <C> <C> <C> <C>
Biopharmaceuticals................................................. $ (75) $ (2,282) $ (4,767) $ 13,647
Vaccines........................................................... (9,972) (20,524) (16,280) (35,039)
Blood testing...................................................... 12,083 17,746 26,598 28,334
Other.............................................................. 26,846 14,257 41,717 19,195
---------- ---------- ---------- ----------
Segment income from operations................................... 28,882 9,197 47,268 26,137
Reconciling items:
Write-off of purchased in-process technologies................... -- 1,645 -- 1,645
Restructuring and reorganization charges......................... -- (2,610) 3,352 4,938
---------- ---------- ---------- ----------
Income from operations............................................. 28,882 10,162 43,916 19,554
Gain on sale of assets........................................... -- 6,241 -- 6,241
Interest expense................................................. (5,863) (6,049) (11,708) (12,629)
Other income, net................................................ 20,816 7,566 43,376 16,161
---------- ---------- ---------- ----------
Income from continuing operations, before income taxes............. $ 43,835 $ 17,920 $ 75,584 $ 29,327
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE 6--CONTINGENCIES
The Company is party to various claims, investigations, and legal
proceedings arising in the ordinary course of business. These claims,
investigations, and legal proceedings relate to intellectual property rights,
contractual rights and obligations, employment matters, claims of product
liability, and other issues. While there is no assurance that an adverse
determination of any of such matters could not have a material adverse impact in
any future period, management does not believe, based upon information known to
it, that the final resolution of any of these matters will have a material
adverse effect upon the Company's consolidated financial position and annual
results of operations and cash flows.
NOTE 7--SUBSEQUENT EVENT
In July 1999, the Company sold a portion of its Claremont facility, which
was retained upon the completion of the sale of Chiron Vision. The Company
anticipates that it will recognize a net gain upon the sale of these assets in
the third quarter of 1999. As of June 30, 1999 and December 31, 1998, these
assets were recorded as "Other current assets" in the accompanying Condensed
Consolidated Balance Sheets.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS.
THESE INCLUDE STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, FUTURE
EVENTS OR PERFORMANCE, AND ALL OTHER STATEMENTS WHICH ARE OTHER THAN STATEMENTS
OF HISTORICAL FACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING WORDS
SUCH AS "BELIEVES", "ANTICIPATES", "EXPECTS", "ESTIMATES", "PROJECTS", "WILL",
"MAY", "MIGHT", AND WORDS OF A SIMILAR NATURE. THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS REPORT REFLECT MANAGEMENT'S CURRENT BELIEFS AND EXPECTATIONS
ON THE DATE OF THIS REPORT. ACTUAL RESULTS, PERFORMANCE OR OUTCOMES MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS. SOME OF THE
IMPORTANT FACTORS WHICH, IN THE VIEW OF CHIRON CORPORATION ("CHIRON" OR THE
"COMPANY"), COULD CAUSE ACTUAL RESULTS TO DIFFER ARE DISCUSSED UNDER THE CAPTION
"FACTORS THAT MAY AFFECT FUTURE RESULTS." THE COMPANY UNDERTAKES NO OBLIGATION
TO PUBLICLY ANNOUNCE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO
REFLECT FACTS OR CIRCUMSTANCES OF WHICH MANAGEMENT BECOMES AWARE AFTER THE DATE
THEREOF.
THE DISCUSSION BELOW SHOULD BE READ IN CONJUNCTION WITH PART I, ITEM
1.,"FINANCIAL STATEMENTS", OF THIS QUARTERLY REPORT ON FORM 10-Q AND PART II,
ITEMS 7, 7A, AND 8, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS", "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK", AND "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA", RESPECTIVELY,
OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1999.
Chiron is a biotechnology company that participates in three global
healthcare businesses: biopharmaceuticals, vaccines, and blood testing. The
biopharmaceuticals segment consists of products and services related to
therapeutics, with an emphasis on oncology, serious infectious diseases, and
cardiovascular diseases as well as the development and acquisition of
technologies related to recombinant technology, gene therapy, small molecule
therapeutics, and genomics. The vaccines segment consists principally of adult
and pediatric vaccines sold primarily in Germany, Italy, and certain other
international markets. The blood testing segment consists of an alliance with
Gen-Probe Incorporated ("Gen-Probe") and Chiron's one-half interest in the
pretax operating earnings of its joint business with Ortho-Clinical Diagnostics,
Inc. ("Ortho"), a Johnson & Johnson company. Chiron's alliance with Gen-Probe is
focused on developing and selling products using nucleic acid testing ("NAT") to
screen blood and plasma for infection by viruses. Chiron's joint business with
Ortho sells a line of immunodiagnostic tests other than NAT tests required to
screen blood for hepatitis viruses and retroviruses, and provides supplemental
tests and microplate-based instrument systems to automate test performance and
data collection.
On December 29, 1997, Chiron completed the sale of its ophthalmics business
("Chiron Vision") to Bausch & Lomb Incorporated ("B&L") and on November 30,
1998, Chiron completed the sale of its IN VITRO diagnostics business ("Chiron
Diagnostics") to Bayer Corporation ("Bayer"). The Company's condensed
consolidated statements of operations reflect the after-tax results of Chiron
Diagnostics as discontinued operations for the three and six months ended June
30, 1998.
On March 31, 1998, in an acquisition accounted for under the purchase method
of accounting, Chiron acquired the remaining 51% interest in Chiron Behring GmbH
& Co ("Chiron Behring") from Hoechst AG. Beginning in the second quarter of
1998, the results of Chiron Behring were consolidated with those of the Company.
RESULTS OF OPERATIONS
REVENUES
BIOPHARMACEUTICAL PRODUCT SALES For the three months ended June 30, 1999
and 1998, product sales from the biopharmaceuticals segment were $55.0 million
and $47.0 million, respectively. For the six months ended June 30, 1999 and
1998, biopharmaceutical product sales were $98.1 million and $97.3 million,
respectively. In 1999 and 1998, biopharmaceutical product sales consisted
principally of Proleukin-Registered Trademark-
15
<PAGE>
(aldesleukin, interleukin-2), Betaseron-Registered Trademark- (interferon
beta-1b) and PDGF (recombinant human platelet-derived growth factor -rhPDGF-BB).
PROLEUKIN-REGISTERED TRADEMARK- Chiron sells
Proleukin-Registered Trademark- directly in the U.S. and certain international
markets. For the three months ended June 30, 1999 and 1998, sales of
Proleukin-Registered Trademark- were $37.2 million and $23.0 million,
respectively. For the six months ended June 30, 1999 and 1998, sales of
Proleukin-Registered Trademark- were $63.1 million and $43.9 million,
respectively. Management believes that the second quarter 1999 increase in
Proleukin-Registered Trademark- product sales as compared with 1998 is primarily
due to a shift in sales from the third quarter to the second quarter in
anticipation of a July 1999 price increase. As a result of this shift,
management anticipates that sales of Proleukin-Registered Trademark- in the
third quarter of 1999 will be substantially below the $37.2 million recognized
in the second quarter of 1999. Also impacting the increase in
Proleukin-Registered Trademark- product sales are continued volume growth in
existing indications and price increases which occurred during the year. The
Company continues to pursue the use of Proleukin-Registered Trademark- for
additional indications, including human immunodeficiency virus ("HIV"). The
Company also anticipates further geographic expansion of
Proleukin-Registered Trademark- into additional countries.
BETASERON-REGISTERED TRADEMARK- Chiron manufactures
Betaseron-Registered Trademark- for Berlex Laboratories, Inc. ("Berlex") and its
parent company, Schering AG of Germany. Chiron earns a partial payment for
Betaseron-Registered Trademark- upon shipment to Berlex and Schering AG and a
subsequent additional payment upon sales by Berlex and Schering AG. Accordingly,
Chiron's revenues from Betaseron-Registered Trademark- tend to fluctuate based
upon the inventory management practices of Berlex and Schering AG. For the three
months ended June 30, 1999 and 1998, revenues from
Betaseron-Registered Trademark- were $14.0 million and $17.2 million,
respectively. For the six months ended June 30, 1999 and 1998, revenues from
Betaseron-Registered Trademark- were $28.6 million and $31.3 million,
respectively. Management believes that the decrease in
Betaseron-Registered Trademark- revenues in 1999 as compared with 1998 is
primarily related to shipments that were postponed due to an anticipated label
change by Berlex. Also contributing to the decrease in
Betaseron-Registered Trademark- revenues was the October 1998 contractual
decrease in the transfer price received by Chiron for the manufacture of
Betaseron-Registered Trademark-.
PDGF Chiron manufactures PDGF for Ortho-McNeil Pharmaceutical, Inc., a
Johnson & Johnson ("J&J") company. PDGF is the active ingredient in
Regranex-Registered Trademark- (becaplermin) Gel, a treatment for diabetic foot
ulcers. Regranex-Registered Trademark- Gel was approved by the FDA in December
1997 and was launched commercially in early 1998. Sales of PDGF to J&J were $4.6
million for the three months ended June 30, 1998 and $0.5 million and $17.9
million for the six months ended June 30, 1999 and 1998, respectively. There
were no sales of PDGF recognized during the second quarter of 1999. As
Regranex-Registered Trademark- is the first product of its kind, the Company
believes it will take time for the market to fully develop. In addition,
Chiron's sales of PDGF will tend to fluctuate based upon the inventory
management practices of J&J. Regranex-Registered Trademark- Gel was recently
approved for use in the treatment of diabetic foot ulcers in Canada and Europe.
However, even with these approvals, Chiron's sales to date have largely filled
J&J's initial inventory requirements for product launch, and as a result, no
significant sales of PDGF to J&J are expected until the second quarter of 2000.
VACCINE PRODUCT SALES Chiron sells pediatric and adult vaccines in Germany,
Italy, certain other international markets, and in the U.S. Certain of the
Company's vaccine products, particularly its flu vaccine, are seasonal and
typically have higher sales in the third quarter of the year. For the three
months ended June 30, 1999 and 1998, vaccine product sales were $38.7 million
and $43.9 million, respectively. The decrease in product sales for the three
months ended June 30, 1999 as compared with the same period in 1998 is primarily
due to a recall and inventory write-off of a portion of the Company's tick-borne
encephalitis vaccine inventory that failed to meet manufacturing specifications
for purity during the first quarter of 1999. The Company subsequently retested
all remaining tick-borne encephalitis vaccine inventory and found it to meet
specifications. The Company has since received approval from the relevant
regulatory authority and is selling the product.
16
<PAGE>
Also contributing to the decrease in product sales is the seasonality of
certain of the Company's vaccine products. Historically, the results of the
Company's Italian subsidiary were reported on a one-month lag; however, during
the first quarter of 1999, the Company eliminated the lag such that these
results are now reported on a current basis. As a result of this change, the
Company expects certain fluctuations in product sales and in particular,
anticipates that a significant amount of flu vaccine sales which were
historically recorded during the fourth quarter to now be recorded during the
third quarter of each year.
For the six months ended June 30, 1999 and 1998, vaccine product sales were
$83.2 million and $58.4 million, respectively. The increase in sales for the six
months ended June 30, 1999 as compared with the same period in 1998 is primarily
due to Chiron's acquisition of the remaining 51% interest in, and consolidation
of, Chiron Behring during the second quarter of 1998. Also impacting vaccine
product sales for the six months ended June 30, 1999 was a $4.2 million sale of
adult influenza vaccine to Argentina in the first quarter of 1999.
BLOOD TESTING PRODUCT SALES During the second quarter of 1999, the Company
began recognizing revenues for sales of its nucleic acid tests that are used to
screen blood and plasma under an investigational new drug (IND) application in
the U.S. Product sales related to these tests were $1.9 million for the three
months ended June 30, 1999.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT BUSINESSES For the three months
ended June 30, 1999 and 1998, Chiron recognized equity in earnings of
unconsolidated joint businesses of $17.0 million and $17.4 million,
respectively. For the six months ended June 30, 1999 and 1998, Chiron recognized
equity in earnings of unconsolidated joint businesses of $35.1 million and $30.2
million, respectively. In 1999, equity in earnings of unconsolidated joint
businesses consisted substantially of revenues generated by Chiron's joint
business with Ortho. In 1998, equity in earnings of unconsolidated joint
businesses also included one quarter of earnings from Chiron's 49% share of the
after-tax operating results of Chiron Behring.
CHIRON-ORTHO JOINT BUSINESS For the three months ended June 30, 1999 and
1998, Chiron's earnings from its joint business with Ortho were $16.7 million
and $18.1 million, respectively. For the six months ended June 30, 1999 and
1998, these earnings were $34.5 million and $29.5 million, respectively. The
overall fluctuations in earnings from the joint business are primarily due to
certain adjustments made during the first quarters of 1999 and 1998, offset in
part, by lower affiliate profits in 1999. In the first quarter of 1999, an
annual inventory adjustment resulted in a charge of $0.7 million as compared
with a charge of $4.1 million recognized in the first quarter of 1998. Also
contributing to the increase in earnings in 1999 as compared with 1998, were
higher foreign affiliate profits and a first-quarter 1998 one-time contract
termination fee.
CHIRON BEHRING On July 1, 1996, Chiron acquired a 49% interest in Chiron
Behring. On March 31, 1998, Chiron acquired the remaining 51% interest in Chiron
Behring (refer to Note 4 of NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS). From July 1, 1996 through the first quarter of 1998, equity in
earnings of unconsolidated joint businesses included Chiron's 49% share of the
after-tax operating results of Chiron Behring. Chiron's share of earnings from
the joint business, including amortization of intangibles, was $2.4 million for
the three months ended March 31, 1998. Beginning in the second quarter of 1998,
Chiron Behring's results were consolidated with those of the Company.
COLLABORATIVE AGREEMENT REVENUES Chiron recognizes collaborative agreement
revenues for fees received for research services as they are performed and fees
received upon the achievement of specified milestones. For the three months
ended June 30, 1999 and 1998, Chiron recognized collaborative agreement revenues
of $18.7 million and $24.4 million, respectively. For the six months ended June
30, 1999 and 1998, collaborative agreement revenues were $41.2 million and $48.8
million, respectively. The decrease in collaborative agreement revenues in 1999
as compared with 1998 is partially due to a contractual decrease in payments
received by the Company under a November 1996 consent agreement
17
<PAGE>
between Chiron, Novartis AG ("Novartis"), and the Federal Trade Commission
related to the Herpes Simplex Virus-thymidine kinase (HSV-tk) gene in the field
of gene therapy (for more information, refer to the Company's Annual Report on
Form 10-K for the year ended January 3, 1999).
The remaining decrease is primarily due to an agreement with Novartis, which
expires on December 31, 1999, under which Novartis agreed to provide research
funding for certain projects (for more information, refer to the Company's
Annual Report on Form 10-K for the year ended January 3, 1999). Under this
agreement, for the three months ended June 30, 1999 and 1998, Chiron recognized
collaborative agreement revenues of $13.0 million and $15.6 million,
respectively. For the six months ended June 30, 1999 and 1998, revenues
recognized under this agreement were $29.0 million and $31.6 million,
respectively.
Collaborative agreement revenues tend to fluctuate based on the amount of
research services performed, the status of projects under collaboration, and the
achievement of milestones. Due to the nature of the Company's collaborative
agreement revenue, results in any one period are not necessarily indicative of
results that may be achieved in the future. The Company's ability to generate
additional collaborative agreement revenues may depend, in part, on its ability
to initiate and maintain relationships with potential and current collaborative
partners. There can be no assurance that such relationships will be established
or that current collaborative agreement revenue will not decline.
ROYALTY AND LICENSE FEE REVENUES The Company receives royalties and license
fees for products or technologies that are marketed, distributed, or used by
third parties. For the three months ended June 30, 1999 and 1998, Chiron
recognized royalty and license fee revenues of $27.3 million and $15.5 million,
respectively. For the six months ended June 30, 1999 and 1998, royalty and
license fee revenues were $59.8 million and $31.6 million, respectively. The
increase in royalty and license fee revenues in 1999 as compared with 1998 is
primarily due to a cross-license agreement with Bayer whereby Chiron agreed to
grant to Bayer rights under certain Chiron patents, including rights under
patents relating to HIV and hepatitis C virus. In exchange for these rights,
Bayer paid to Chiron a license fee of $100.0 million, which is refundable in
decreasing amounts over a period of three years. During the three and six months
ended June 30, 1999, Chiron recognized license fee revenues of $10.0 million and
$20.0 million, respectively, which represent the portions of the $100.0 million
payment that became nonrefundable during the periods. For the three months ended
June 30, 1999, other items contributing to royalty and license fee revenues were
$7.2 million of royalties generated from Schering AG's European sales of
Betaferon-Registered Trademark- and $4.0 million of royalties related to other
vaccine products. For the six months ended June 30, 1999, other items
contributing to royalty and license fee revenues were $14.1 million of royalties
generated from Schering AG's European sales of Betaferon-Registered Trademark-,
$8.0 million of royalties related to insulin products, and $9.5 million related
to vaccine products. In the first quarter of 1998, Chiron recognized $5.0
million related to a license fee received from Pharmacia & Upjohn Company to
research, develop, manufacture, and commercialize therapeutic products for the
treatment of hepatitis C virus in humans.
Royalty and license fee revenues may fluctuate based on the nature of the
related agreements and the timing of receipt of license fees. Results in any one
period are not necessarily indicative of results to be achieved in the future.
In addition, the Company's ability to generate additional royalty and license
fee revenues may depend, in part, on its ability to market and capitalize on its
technologies. There can be no assurance that the Company will be able to do so
or that future royalty and license fee revenue will not decline.
OTHER REVENUES For the three months ended June 30, 1999 and 1998, Chiron
recognized other revenues of $24.7 million and $9.5 million, respectively. For
the six months ended June 30, 1999 and 1998, these revenues were $34.3 million
and $20.3 million, respectively. The increase in other revenues in 1999 as
compared with 1998 is primarily due to $9.7 million of revenues earned upon the
FDA's approval of DepoCyt-Registered Trademark- in April 1999. Also contributing
to the increase in other revenues were contract manufacturing revenues which
increased to $5.8 million in the second quarter of 1999 from $0.9 million in the
comparable
18
<PAGE>
period in 1998 as a result of a new contract manufacturing agreement and a
cancellation fee recognized upon the termination of an existing agreement. Also
included in other revenues during the second quarters of 1999 and 1998 were $6.2
million and $6.3 million, respectively, of commission revenues received on sales
of hepatitis B products and immunoglobulin products.
For the six months ended June 30, 1999, other revenues primarily consisted
of $9.7 million related to the approval of DepoCyt-Registered Trademark-, $8.4
million related to contract manufacturing and $11.2 million related to
commission revenues. For the six months ended June 30, 1998, other revenues
primarily consisted of $9.8 million of revenues related to
Aredia-Registered Trademark- (pamidronate disodium for injection) recognized
under an arrangement which terminated in April 1998 pursuant to which Chiron
promoted Aredia-Registered Trademark- on behalf of Novartis and $6.3 million of
commission revenues.
The Company's other revenues may fluctuate due to the nature of the revenues
recognized and the timing of events giving rise to these revenues. There can be
no guarantee that the Company will be successful in obtaining additional
revenues or that these revenues will not decline.
COSTS AND EXPENSES
GROSS PROFIT For the three months ended June 30, 1999 and 1998, gross
profit as a percentage of net product sales was 60% and 53%, respectively. For
each of the six months ended June 30, 1999 and 1998, gross profit as a
percentage of net product sales was 56%. In the second quarter of 1998, Chiron
recognized a $6.0 million reduction in cost of goods sold related to a change in
estimated property tax accruals created in prior periods. Excluding this
reduction, gross profit as a percentage of net product sales would have been 47%
and 52% for the three and six months ended June 30, 1998, respectively. The
increase in gross profit is primarily related to (i) a favorable mix of product
sales, which includes a higher proportion of biopharmaceutical products in
relation to total product sales in the second quarter of 1999; (ii) certain
charges incurred during the second quarter of 1998 related to vaccine inventory
reserves and one-time repackaging expenses; (iii) a favorable mix of
Betaseron-Registered Trademark- revenues, which includes a higher proportion of
secondary revenues recognized upon Berlex and Schering AG's sales to end users;
and (iv) manufacturing efficiencies resulting from increased production. In
addition, for the six months ended June 30, 1999, improvements in gross profit
margins resulted from a reduction in idle facility costs and price increases on
sales of Proleukin-Registered Trademark-.
Also impacting the Company's gross profit margin during the six months ended
June 30, 1999 was the write-off of a portion of the Company's tick-borne
encephalitis vaccine inventory that failed to satisfy manufacturing
specifications for purity. The total charge that related to this inventory was
$3.1 million recognized during the first half of 1999.
The Company's gross profit percentages may fluctuate significantly in future
periods as the Company's product mix continues to evolve.
RESEARCH AND DEVELOPMENT For the three months ended June 30, 1999 and 1998,
Chiron recognized research and development expenses of $73.8 million and $66.1
million, respectively. For the six months ended June 30, 1999 and 1998, Chiron's
research and development expenses were $141.3 million and $128.9 million,
respectively. The Company's research and development expenses may fluctuate from
period to period depending upon the stage of certain projects and the level of
clinical trial-related activities. The increase in research and development
spending in 1999 as compared with 1998 was due, in part, to a $3.0 million
milestone payment made during the second quarter of 1999 related to the
Company's collaboration agreement with Medivir AB and the acquisition and
consolidation of Chiron Behring, which contributed $2.8 million to research and
development expenses during the first three months of 1999. Also contributing to
the increase in research and development expense was the furtherance of the
Company's clinical trials related to Proleukin-Registered Trademark- for HIV,
IGF-1 for osteoarthritis, and Fibroblast Growth Factor (FGF) for coronary artery
disease.
19
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE For the three months ended June 30,
1999 and 1998, Chiron recognized selling, general, and administrative ("SG&A")
expenses of $45.2 million and $38.7 million, respectively. For the six months
ended June 30, 1999 and 1998, Chiron recognized SG&A expenses of $86.8 million
and $62.8 million, respectively. The increase in SG&A expenses in 1999 as
compared with 1998 is primarily due to the acquisition and consolidation of
Chiron Behring, which contributed $10.2 million to SG&A expenses in the first
three months of 1999. SG&A expenses also increased as a result of the Company's
focus on developing and launching the nucleic acid testing segment of its blood
testing business, certain patent defense legal costs, and the worldwide
implementation of its integrated information system in April 1999.
OTHER OPERATING EXPENSES In the first half of 1999, the Company recorded
restructuring and reorganization charges of $3.4 million primarily related to
the continued integration of its worldwide vaccine operations. These charges
primarily consisted of termination and other employee-related costs recognized
in connection with the elimination of 28 positions in the Company's Italian
manufacturing facility. As of June 30, 1999, 11 of these positions had been
eliminated. In the first half of 1998, the Company recorded restructuring and
reorganization charges of $4.9 million which included a second quarter benefit
of $3.6 million related to a revised estimate of property and other tax-related
accruals recorded in 1995 in connection with the idling of the Puerto Rico
facility, offset in part, by $1.0 million of other facility and lease
termination costs. In fiscal year 1998, the Company recorded restructuring and
reorganization charges of $26.8 million primarily related to termination and
other employee-related expenses recognized in connection with the elimination of
400 positions in manufacturing, research and development, sales, marketing, and
other administrative functions, and facility-related costs. As of June 30, 1999,
311 of these positions had been eliminated.
During the second quarter of 1999, Chiron recognized a reduction in other
operating expenses of $6.4 million resulting from a change in estimated tax
accruals related to certain employee payments recorded in 1995 under a series of
agreements between Chiron and Novartis (for more information, refer to the
Company's Annual Report on Form 10-K for the year ended January 3, 1999).
NON-OPERATING INCOME AND EXPENSE
Other income, net, primarily consists of interest and investment income on
the Company's cash and investment balances and other non-operating gains and
losses. For the three months ended June 30, 1999 and 1998, Chiron recognized
interest and investment income of $20.4 million and $7.9 million, respectively.
For the six months ended June 30, 1999 and 1998, interest and investment income
totaled $40.7 million and $14.3 million, respectively. The increase in interest
and investment income in 1999 as compared with 1998 is primarily due to higher
average cash and investment balances attributable to the net cash proceeds
received from the sale of Chiron Diagnostics in November 1998. Interest expense
remained fairly constant at $5.9 million and $6.0 million for the three months
ended June 30, 1999 and 1998, respectively, and $11.7 million and $12.6 million
for the six months ended June 30, 1999 and 1998, respectively.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, SFAS 133
was amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS 133." As a result of this
amendment, SFAS 133 shall be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000.
In accordance with SFAS 133, an entity is required to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133
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requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. The Company is currently evaluating the effect that
implementation of SFAS 133 will have on its results of operations and financial
position and anticipates that it will implement SFAS 133 during the first fiscal
quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Chiron's capital requirements have generally been funded from operations,
cash and investments on hand, debt borrowings, issuance of common stock, and
off-balance sheet financing. Chiron's cash and investments in marketable debt
securities, which totaled $1.5 billion at June 30, 1999, are invested in a
diversified portfolio of investment grade financial instruments, including money
market instruments, corporate notes and bonds, government or government agency
securities, and other debt securities. By policy, the amount of credit exposure
to any one institution is limited; however, these investments are generally not
collateralized and primarily mature within three years.
SOURCES AND USES OF CASH Chiron had cash and cash equivalents of $47.5
million and $158.1 million at June 30, 1999 and 1998, respectively. For the
first half of 1999, net cash used in operating activities was $125.2 million as
compared with net cash provided by operating activities of $46.7 million in
1998. In the first half of 1999, the Company paid $165.4 million in estimated
taxes primarily related to the sale of the Company's IN VITRO diagnostics
business. This use of cash was partially offset by net income of $60.5 million
for the six months ended June 30, 1999.
In the first half 1999, net cash used in investing activities consisted of
purchases of investments in marketable debt securities of $1.0 billion, capital
expenditures of $42.4 million, and other uses of cash of $15.5 million.
Partially offsetting these uses of cash were proceeds from the sale and maturity
of investments in marketable debt securities of $684.7 million and proceeds from
disposal of discontinued operations of $35.4 million.
In the first half of 1999, net cash provided by financing activities
primarily consisted of $31.5 million from the issuance of common stock related
to stock option exercises and $8.1 million related to short-term borrowings.
This was partially offset by $1.2 million related to the repayment of certain
notes payable and short-term leases, and $6.7 million related to the acquisition
of treasury stock.
In February 1999, the Company's Board of Directors authorized the repurchase
of up to 2.5 million shares of Chiron common stock from time to time on the open
market to offset the dilution associated with the operation of the Company's
stock option and employee stock purchase plans and the granting of share rights.
The Board of Directors has authorized such purchases through March 2000. As of
June 30, 1999, 329,500 shares had been repurchased.
The Company is currently evaluating a number of business development
opportunities. To the extent that the Company is successful in reaching
agreements with third parties, these transactions may involve the expenditure of
a significant amount of the Company's current investment portfolio.
BORROWING ARRANGEMENTS Under a revolving, committed, unsecured credit
agreement with a major financial institution, Chiron can borrow up to $100.0
million in the U.S. This credit facility is guaranteed by Novartis, provides
various interest rate options, and matures in February 2003. There were no
borrowings outstanding under this credit facility at June 30, 1999. Chiron also
has credit facilities outside the U.S. which allow for total borrowings of $62.6
million. Under these credit facilities, $24.1 million of borrowings were
outstanding at June 30, 1999.
YEAR 2000 Chiron is dependent on a number of computer systems and
applications to conduct its business. In the past, many computer programs were
written using two digits rather than four to identify the relevant year. These
programs may not be able to distinguish between 21(st) and 20(th) century dates
(for
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<PAGE>
example, "00" may be read as the year 1900 when the year 2000 is intended). This
could result in significant system failures or miscalculations. Accordingly, the
Company has developed a comprehensive risk-based plan designed to make its
computer hardware and communication systems, software applications, and
facilities and other non-information technology-related functions Year 2000
compliant. The plan covers three phases including (i) planning, (ii) assessment,
and (iii) implementation. The Company has completed the planning and assessment
phases and has substantially completed the implementation phase. With regard to
the Company's computer hardware and communication systems, Chiron has completed
its technology refresh program which was developed in conjunction with
International Business Machines, Inc. ("IBM") to update and standardize the
Company's computer hardware and communication systems. With regard to the
Company's software applications, the Company has identified critical and non-
critical software applications and has remediated all mission critical
applications in all material respects. Non-critical applications are currently
being remediated and are targeted for substantial completion during the third
quarter of 1999. The Company implemented its integrated information system
during the second quarter of 1999.
With regard to the Company's key facilities and other non-information
technology-related functions, including research, manufacturing, and inventory
management practices, the Company has substantially completed its remediation
plans for its critical systems. However, certain upgrades related to its
facility control systems have been rescheduled from the second quarter to the
third quarter of 1999. The Company believes that it will also substantially
complete the remediation of other non-critical systems during the third quarter
of 1999.
The Company has a facility in Amsterdam, The Netherlands, which is currently
being marketed for sale. Due to the Company's manufacturing requirements, the
Company plans to operate this facility until the end of 1999, at which time, the
Company intends to complete certain upgrades within its embedded systems. The
Company believes that it will be able to sell the facility in its current state
and does not consider this facility to be a significant Year 2000 risk.
The Company is using both internal and external resources to prepare for the
year 2000. Although the Company believes that it should be able to substantially
complete the implementation of critical internal aspects of its Year 2000 plan
prior to the commencement of the year 2000, even with substantial completion of
internal remediation plans, the Company's customers, suppliers, and distributors
also present risk of their own Year 2000 compliance over which the Company has
no control. The Company has surveyed and assessed its critical suppliers and
other external relationships to determine the extent to which the Company may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. Where
practicable, the Company is attempting to mitigate its risks with respect to the
failure of these entities to be Year 2000 compliant and has prepared contingency
plans accordingly. The Company cannot reasonably estimate the effect, if any,
from the failure of such parties to be Year 2000 compliant. However, the Company
believes that its contingency plans will substantially mitigate all material
risks resulting from such parties' failure to resolve their Year 2000 issues.
The SEC has requested that companies disclose the most likely worst case
scenario that could occur as a result of the Year 2000. The Company believes
that its most likely worst case scenario would be delays in product shipments
due to a complete or partial manufacturing shutdown. To address the
manufacturing shutdown scenario, the Company plans, among other things, to
increase its inventory and re-prioritize staff assignments, as needed, but does
not believe that such a scenario is likely to occur.
In addition to the Company's remediation efforts, the Company is also
implementing contingency plans and preparing for the year-end rollover and leap
year. The Company's contingency plans include, among other things, the
implementation of specific plans to ensure that the necessary precautions are
taken to prevent and/or address an unexpected system failure. The Company also
intends to increase certain raw material and finished goods inventories to
mitigate external and internal risks. The Company's plans also include placing
teams in all critical locations to monitor and protect critical systems during
the year-end rollover period. The Company intends to monitor its computer
hardware and communication
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systems, software applications, and facilities and other non-information
technology-related functions for Year 2000 issues through March 2000.
The Company may incur significant costs in identifying and resolving Year
2000 issues, including internal staffing costs as well as consulting and other
expenses. In addition, in certain instances, the appropriate course of action
may include replacing or upgrading systems or equipment at a substantial cost to
the Company. Costs associated with preparing for the year 2000 are not expected
to exceed $5.5 million, and include costs related to contingency plans, which
may not require execution. The costs related to the technology refresh program
and the integrated information system are not included in the above estimates as
Year 2000 compliance is incidental to the operational benefits expected to be
derived from these programs. As of June 30, 1999, total costs incurred to date
have been funded through operations and approximate $2.4 million. The Company
anticipates funding its remaining Year 2000 expenditures with cash on hand and
cash generated through operations.
EURO CONVERSION On January 1, 1999, eleven European Union member countries
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency, the Euro. The Euro is currently traded on
currency exchanges and can be used in business transactions. The Company
believes that its financial systems are Euro-ready in all material respects.
However, the Company is still in the process of evaluating the effect, if any,
that the Euro may have on its product pricing and gross profit percentages.
FACTORS THAT MAY AFFECT FUTURE RESULTS
As a biotechnology company, Chiron is engaged in a rapidly evolving and
often unpredictable business. The forward-looking statements contained in this
Report and in other periodic reports, press releases and other statements issued
by the Company from time to time reflect management's current beliefs and
expectations concerning objectives, plans, strategies, future performance, and
other future events. The following discussion highlights some of the factors,
many of which are beyond the Company's control, which could cause actual results
to differ.
PROMISING TECHNOLOGIES ULTIMATELY MAY NOT PROVE SUCCESSFUL
The Company focuses its research and development activities on areas in
which it has particular strengths, and on technologies that appear promising.
These technologies often are on the "cutting edge" of modern science. As a
result, the outcome of any research or development program is highly uncertain.
Only a very small fraction of such programs ultimately result in commercial
products or even product candidates. Product candidates that initially appear
promising often fail to yield successful products. In many cases, preclinical or
clinical studies will show that a product candidate is not efficacious (that is,
it does not have the intended therapeutic or prophylactic effect), or that it
raises safety concerns or has other side effects which outweigh the intended
benefit. Success in preclinical or early clinical trials (which generally focus
on safety issues) may not translate into success in large-scale clinical trials
(which are designed to show efficacy), often for reasons that are not fully
understood. And even after a product is approved and launched, general usage or
post-marketing studies may identify safety or other previously unknown problems
with the product which may result in regulatory approvals being suspended,
limited to narrow indications, or revoked, or which may otherwise prevent
successful commercialization.
REGULATORY APPROVALS
The Company is required to obtain and maintain regulatory approval in order
to market most of its products. Generally, these approvals are on a
product-by-product and country-by-country basis, and, in the case of therapeutic
products, a separate approval is required for each therapeutic indication. See
Item 1., "Business--Government Regulation" in the Company's Annual Report on
Form 10-K for the year ended January 3, 1999. Product candidates that appear
promising based on early, and even large-scale, clinical trials may not receive
regulatory approval. The results of clinical trials often are susceptible to
varying interpretations that may delay, limit or prevent approval or result in
the need for post-marketing studies.
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<PAGE>
MANUFACTURING
Most of the Company's products are biologics. Manufacturing biologic
products is complex. Unlike chemical pharmaceuticals, a biologic product
generally cannot be sufficiently characterized (in terms of its physical and
chemical properties) to rely on assaying of the finished product alone to ensure
that the product will perform in the intended manner. Accordingly, it is
essential to be able to both validate and control the manufacturing process:
that is, to show that the process works, and that the product is made strictly
and consistently in compliance with that process. Slight deviations in the
manufacturing process may result in unacceptable changes in the products that
may result in lot failures. Manufacturing processes which are used to produce
the (smaller) quantities of material needed for research and development
purposes may not be successfully scaled up to allow production of commercial
quantities at reasonable cost or at all. All of these difficulties are
compounded when dealing with novel biologic products that require novel
manufacturing processes. Accordingly, manufacturing is subject to extensive
government regulation. Even minor changes in the manufacturing process require
regulatory approval, which, in turn, may require further clinical studies.
PATENTS HELD BY THIRD PARTIES MAY DELAY OR PREVENT COMMERCIALIZATION
Third parties, including competitors, have patents and patent applications
in the U.S. and other significant markets that may be useful or necessary for
the manufacture, use, or sale of certain of the Company's products and products
in development. It is likely that third parties will obtain other such patents
in the future. Certain of these patents may be sufficiently broad to prevent or
delay Chiron from manufacturing or marketing products important to the Company's
current and future business. The scope, validity, and enforceability of such
patents, if granted, the extent to which Chiron may wish or need to obtain
licenses to such patents, and the cost and availability of such licenses cannot
be accurately predicted. If Chiron does not obtain such licenses, products may
be withdrawn from the market or delays could be encountered in market
introduction while an attempt is made to design around such patents.
Alternatively, Chiron could find that the development, manufacture, or sale of
such products is foreclosed. Chiron could also incur substantial costs in
challenging the validity and scope of such patents.
PRODUCT ACCEPTANCE
The Company may experience difficulties in launching new products, many of
which are novel products based on technologies that are unfamiliar to the
healthcare community. There can be no assurance that healthcare providers and
patients will accept such products. In addition, government agencies as well as
private organizations involved in healthcare from time to time publish
guidelines or recommendations to healthcare providers and patients. Such
guidelines or recommendations can be very influential, and may adversely affect
the usage of the Company's products directly (for example, by recommending a
decreased dosage of the Company's product in conjunction with a concomitant
therapy) or indirectly (for example, by recommending a competitive product over
the Company's product).
COMPETITION
Chiron operates in a highly competitive environment, and the competition is
expected to increase. Competitors include large pharmaceutical, chemical and
blood testing companies, as well as biotechnology companies. Some of these
competitors, particularly large pharmaceutical and blood testing companies, have
greater resources than the Company. Accordingly, even if the Company is
successful in launching a product, it may find that a competitive product
dominates the market for any number of reasons, including the possibility that
the competitor may have launched its product first; the competitor may have
greater marketing capabilities; or the competitive product may have therapeutic
or other advantages. The technologies applied by the Company and its competitors
are rapidly evolving, and new developments frequently result in price
competition and product obsolescence.
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CHIRON'S PATENTS MAY NOT PREVENT COMPETITION OR GENERATE REVENUES
Chiron seeks to obtain patents on its inventions. Without the protection of
patents, competitors may be able to use the Company's inventions to manufacture
and market competing products without being required to undertake the lengthy
and expensive development efforts made by Chiron and without having to pay
royalties or otherwise compensate Chiron for the use of the invention.
There can be no assurance that patents and patent applications owned or
licensed to Chiron will provide substantial protection. Important legal
questions remain to be resolved as to the extent and scope of available patent
protection for biotechnology products and processes in the U.S. and other
important markets. It is not known how many of the Company's pending patent
applications will be granted, or the effective coverage of those that are
granted. In the U.S. and other important markets, the issuance of a patent is
neither conclusive as to its validity nor the enforceable scope of its claims.
The Company has engaged in significant litigation to determine the scope and
validity of certain of its patents and expects to continue to do so in the
future.
Even if the Company is successful in obtaining and defending patents, there
can be no assurance that these patents will provide substantial protection. The
length of time necessary to successfully resolve patent litigation may allow
infringers to gain significant market advantage. Third parties may be able to
design around the patents and develop competitive products that do not use the
inventions covered by the patents. Many countries, including certain countries
in Europe, have compulsory licensing laws under which a patent owner may be
compelled to grant licenses to third parties (for example, the third party's
product is needed to meet a threat to public health or safety in that country,
or the patent owner has failed to "work" the invention in that country, or the
third party has patented improvements) and most countries limit the
enforceability of patents against government agencies or government contractors.
In these countries, the patent owner may be limited to monetary relief and may
be unable to enjoin infringement, which could materially diminish the value of
the patent.
AVAILABILITY OF REIMBURSEMENT; GOVERNMENT AND OTHER PRESSURES ON PRICING
In the U.S. and other significant markets, sales of the Company's products
may be affected by the availability of reimbursement from the government or
other third parties, such as insurance companies. It is difficult to predict the
reimbursement status of newly approved, novel biotechnology products, and
current reimbursement policies for existing products may change. In certain
foreign markets, governments have issued regulations relating to the pricing and
profitability of pharmaceutical companies. There have been proposals in the U.S.
(at both the federal and state level) to implement such controls. The growth of
managed care in the U.S. also has placed pressure on the pricing of healthcare
products. These pressures can be expected to continue.
COSTS ASSOCIATED WITH REFOCUSING AND EXPANDING THE BUSINESS
The Company is refocusing its efforts on its core businesses and on
improving operational efficiencies. In addition, management expects to grow the
business in areas in which the Company can be most competitive, either through
in-licensing, collaborations, or acquisitions of products or companies. In
connection with these efforts, the Company may incur significant charges, costs,
and expenses which could impact the Company's profitability, including
impairment losses, restructuring charges, the write-off of purchased in-process
technology, transaction-related expenses, costs associated with integrating new
businesses, and the cost of amortizing goodwill and other intangibles.
OTHER NEW PRODUCTS AND SOURCES OF REVENUE
Many products in the Company's current pipeline are in relatively early
stages of research or development. The Company's ability to grow earnings in the
near-to medium-term may depend, in part, on its ability to initiate and maintain
other revenue generating relationships with third parties, such as licenses
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<PAGE>
to certain of the Company's technologies, and on its ability to identify and
successfully acquire rights to later-stage products from third parties. There
can be no assurance that such other sources of revenue will be established.
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS
In 1998, the Company sold certain businesses for cash, including its IN
VITRO diagnostics and ophthalmics businesses, and as a result has significant
cash balances and short-term investments. The Company's financial results
therefore are sensitive to interest rate fluctuations in the U.S. In addition,
the Company sells products in many countries throughout the world, and its
financial results could be significantly affected by fluctuations in foreign
currency exchange rates or by weak economic conditions in foreign markets.
COLLABORATION PARTNERS
An important part of the Company's business strategy depends upon
collaborations with third parties, including research collaborations and joint
efforts to develop and commercialize new products. As circumstances change, the
Company and its corporate partners may develop conflicting priorities or other
conflicts of interest. The Company may experience significant delays and incur
significant expenses in resolving these conflicts and may not be able to resolve
these matters on acceptable terms. Even without conflicts of interest, the
parties may differ in their views as to how best to realize the value associated
with a current product or a product in development. In some cases, the corporate
partner may have responsibility for formulating and implementing key strategic
or operational plans. Decisions by corporate partners on key clinical,
regulatory, marketing (including pricing), inventory management, and other
issues may prevent successful commercialization of the product or otherwise
impact the Company's profitability.
STOCK PRICE VOLATILITY
The price of the Company's stock, like that of other biotechnology
companies, is subject to significant volatility. Any number of events, both
internal and external to the Company, may affect the stock price. These include,
without limitation, results of clinical trials conducted by the Company or by
its competitors; announcements by the Company or its competitors regarding
product development efforts, including the status of regulatory approval
applications; the outcome of legal proceedings, including claims filed by the
Company against third parties to enforce its patents and claims filed by third
parties against the Company relating to patents held by the third parties; the
launch of competing products; the resolution of (or failure to resolve) disputes
with collaboration partners; corporate restructuring by the Company; licensing
activities by the Company; and the acquisition or sale by the Company of
products, products in development, or businesses.
In connection with its research and development collaborations, from time to
time the Company invests in equity securities of its corporate partners. The
price of these securities also is subject to significant volatility and may be
affected by, among other things, the types of events that affect the Company's
stock. Changes in the market price of these securities may impact the Company's
profitability.
TAX
The Company is taxable principally in the U.S., Germany, Italy, and The
Netherlands. All of these jurisdictions have in the past and may in the future
make changes to their corporate tax rates and other tax laws, which could
increase the Company's tax provision in the future. The Company has negotiated a
number of rulings regarding income and other taxes that are subject to periodic
review and renewal. If such rulings are not renewed or are substantially
modified, taxes payable in particular jurisdictions could increase. While the
Company believes that all material tax liabilities are properly reflected in its
balance sheet, the Company is presently under audit in several jurisdictions,
and there can be no assurance that
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Chiron will prevail in all cases in the event the taxing authorities disagree
with its interpretations of the tax law. In addition, the Company has assumed
liabilities for all income taxes incurred prior to the sales of its former
subsidiaries, Chiron Vision Corporation (subject to certain limitations) and
Chiron Diagnostics Corporation. Future levels of research and development
spending, capital investment, and export sales will impact the Company's
entitlement to related tax credits and benefits which have the effect of
lowering its effective tax rate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK MANAGEMENT The Company's cash flow and earnings are subject to
fluctuations due to changes in foreign currency exchange rates, interest rates,
and fair value of equity securities held. The Company attempts to limit its
exposure to some or all of these market risks through the use of various
financial instruments. There were no significant changes in the Company's market
risk exposures during the first half of 1999. For further discussion of the
Company's market risk exposures, refer to Part II, Item 7A., "Quantitative and
Qualitative Disclosures About Market Risk" in Chiron's Annual Report on Form
10-K for the fiscal year ended January 3, 1999.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is party to certain lawsuits and legal proceedings, which are
described in Part I, Item 3., "Legal Proceedings," of the Company's Annual
Report on Form 10-K for the year ended January 3, 1999 and in Part II, Item 1.,
"Legal Proceedings," of the Company's Form 10-Q for the period ended March 31,
1999. The following is a description of material developments during the period
covered by this Quarterly Report and should be read in conjunction with the
Annual Report and the first quarter report on Form 10-Q.
F. Hoffmann-LaRoche AG
Chiron is involved in certain litigation in the United States, The
Netherlands, Japan, Germany, and other countries with F. Hoffmann-LaRoche AG and
several of its affiliated companies concerning infringement and/or validity of
certain patents related to HCV technology.
In January 1998, Chiron initiated an action against F. Hoffmann-LaRoche AG
and several of its affiliated companies (collectively, "Roche") in the United
States District Court for the Northern District of California. The Company
asserts that Roche's manufacture and sale of Amplicor HCV Test and Amplicor HCV
Monitor Test constitutes infringement of Chiron's U.S. Patent Nos. 5,712,088
(the "'088 patent"), 5,714,596 (the "'596 patent"), and 5,863,719 (the "'719
patent"). The action seeks damages, injunctive relief, and a declaratory
judgment that Chiron is the sole and exclusive owner of its HCV technology.
Roche asserted various license-based defenses to Chiron's infringement claims
based upon a provision of a 1991 Asset Purchase Agreement between Roche and
Cetus Corporation. Chiron, Roche asserted, is bound by those provisions as
Cetus' successor-in-interest. The parties' cross-motions for summary judgment on
Roche's license based defenses were resolved in Chiron's favor by a Court order
dated June 23, 1999. The order, which is subject to appeal and possible
reconsideration, holds that Roche has neither express nor implied license rights
to Chiron's HCV technology. Roche also filed a counterclaim requesting a
declaratory judgment of non-infringement and invalidity and also alleging
infringement of U.S. Patent No. 5,580,718 (the "'718 patent"), owned by Roche,
which allegedly relates to nucleic acid-based assays for the detection of HCV.
Roche's counterclaim of infringement seeks damages and injunctive relief. Chiron
is defending on the basis of invalidity and non-infringement of the '718 patent
and also seeks a declaration of invalidity of U.S. Patent No. 5,527,669 (the
"'669 patent"), a related patent also owned by Roche.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders for Chiron Corporation was held on May
13, 1999.
(b) Omitted pursuant to Instruction 3 to Item 4 of Form 10-Q.
(c) The two matters voted upon at the meeting were: (i) to elect four directors
to hold office for three years until the Annual Meeting of Stockholders in
the year 2002, and one director to hold office for one year until the Annual
Meeting of Stockholders in the year 2000; and (ii) to ratify the selection
of KPMG LLP as the independent auditors of the Company for the year ending
December 31, 1999.
(i) The following votes were cast for or were withheld with respect to each
of the nominees for director:
<TABLE>
<CAPTION>
DIRECTORS FOR WITHHELD
- ------------------------------------------------------------------ ------------- ----------
<S> <C> <C>
Mr. Lewis W. Coleman.............................................. 164,968,254 597,446
Dr. Paul L. Herrling.............................................. 162,509,987 3,055,713
Dr. William J. Rutter............................................. 164,964,922 600,778
Mr. Jack W. Schuler............................................... 164,758,683 807,017
Dr. Raymund Breu.................................................. 164,989,432 576,268
</TABLE>
All nominees were declared to have been elected as directors to hold office
until the Annual Meeting of Stockholders in the years 2002 and 2000 as noted
above. No abstentions or broker non-votes were cast for the election of
directors.
The following directors shall continue in office after the Company's Annual
Meeting of Stockholders held on May 13, 1999: Donald A. Glaser, Sean P. Lance
and Pieter J. Strijkert shall continue in office until the Annual Meeting of
Stockholders in the year 2000, and Vaughn D. Bryson, Pierre E. Douaze and Edward
E. Penhoet shall continue in office until the Annual Meeting of Stockholders in
the year 2001. Effective May 14, 1999, the Company's Bylaws were amended to
increase the number of directors from 11 to 12 until the first Annual Meeting of
Stockholders at which directors are elected in or after the year 2000. Effective
May 24, 1999, Dr. Lewis T. "Rusty" Williams, Senior Vice President and Chief
Scientific Officer of the Company, was elected a member of the Board of
Directors, to serve a two-year term until the Annual Meeting of Stockholders in
the year 2001 and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
(ii) With respect to the proposal to ratify the selection of KPMG LLP as the
Company's independent auditors, 165,134,851 votes were cast for the proposal,
287,429 votes were cast against the proposal, and 143,420 votes abstained. No
broker non-votes were cast in connection with the proposal. The selection of
KPMG LLP as the Company's independent auditors for the year ending December 31,
1999 was declared to have been ratified.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.01 Restated Certificate of Incorporation of the Registrant, as filed with the Office of the Secretary of
State of Delaware on August 17, 1987, incorporated by reference to Exhibit 3.01 of the Registrant's
report on Form 10-K for fiscal year 1996.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.02 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, as filed with the
Office of the Secretary of State of Delaware on December 12, 1991, incorporated by reference to Exhibit
3.02 of the Registrant's report on Form 10-K for fiscal year 1996.
3.03 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, as filed with the
Office of the Secretary of State of Delaware on May 22, 1996, incorporated by reference to Exhibit 3.04
of the Registrant's report on Form 10-Q for the period ended June 30, 1996.
3.04 Bylaws of the Registrant, as amended.
4.01 Indenture, dated as of May 21, 1987, between Cetus Corporation and Bankers Trust Company, Trustee
(initially filed as Exhibit 4.01 to the Registrant's report on Form 10-Q for the period ended September
30, 1994).
4.02 First Supplemental Indenture, dated as of December 12, 1991, by and among Registrant, Cetus Corporation,
and Bankers Trust Company, incorporated by reference to Exhibit 4.02 of the Registrant's report on Form
10-K for fiscal year 1997.
4.03 Second Supplemental Indenture, dated as of March 25, 1996, by and among the Registrant, Cetus Oncology
Corporation (formerly Cetus Corporation), and Bankers Trust Company, incorporated by reference to
Exhibit 4.03 of the Registrant's report on Form 10-Q for the period ended June 30, 1996.
4.04 Indenture, dated as of November 15, 1993, between Registrant and The First National Bank of Boston, as
Trustee (initially filed as Exhibit 4.03 of the Registrant's report on Form 10-K for fiscal year 1993),
incorporated by reference to Exhibit 4.04 of the Registrant's report on Form 10-K for fiscal year 1998.
10.102 Guaranty, dated as of September 29, 1994, made by Registrant, in favor of Bankers Trust Company, as
trustee (initially filed as Exhibit 10.52 of the Registrant's report on Form 10-Q for the period ended
September 30, 1994).
10.103 Guaranty, dated as of September 29, 1994, made by Cetus Corporation, in favor of The First National Bank
of Boston, as trustee (initially filed as Exhibit 10.53 of the Registrant's report on Form 10-Q for the
period ended September 30, 1994).
10.104 Stock Purchase and Warrant Agreement dated May 9, 1989, between Cetus Corporation and Hoffmann-La Roche
Inc. (initially filed as Exhibit 10.36 of the Registrant's report on Form 10-Q for the period ended
September 30, 1994).
10.507 Form of Option Agreement (with Purchase Agreements attached thereto) between Cetus Corporation and each
former limited partner of Cetus Healthcare Limited Partnership, a California limited partnership
(initially filed as Exhibit 10.31 of the Registrant's report on Form 10-Q for the period ended September
30, 1994).
10.508 Form of Option Agreement (with forms of Purchase Agreements attached thereto), dated December 30, 1986,
between Cetus Corporation and each former limited partner of Cetus Healthcare Limited Partnership II, a
California limited partnership (initially filed as Exhibit 10.32 of the Registrant's report on Form 10-Q
for the period ended September 30, 1994).
10.601 Indemnification Agreement between the Registrant and Dr. William J. Rutter, dated as of February 12,
1987 (which form of agreement is used for each member of Registrant's Board of Directors) (initially
filed as Exhibit 10.21 of the Registrant's report on Form 10-Q for the period ended September 30, 1994).
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.602 Supplemental Benefits Agreement, dated July 21, 1989, between the Registrant and Dr. William J. Rutter
(initially filed as Exhibit 10.27 of the Registrant's report on Form 10-Q for the period ended September
30, 1994).*
10.604 Letter Agreements dated September 11, 1992, July 15, 1994 and September 14, 1994 between the Registrant
and Lewis T. Williams (initially filed as Exhibit 10.54 of the Registrant's report on Form 10-Q for the
period ended September 30, 1994).*
10.614 Letter Agreement dated May 28, 1999 between Registrant and Paul J. Hastings.*
10.701 Investment Agreement dated as of November 20, 1994 among Ciba-Geigy Limited, Ciba-Geigy Corporation,
Ciba Biotech Partnership, Inc. and Chiron Corporation (initially filed as Exhibit 10.54 of the
Registrant's current report on Form 8-K dated November 20, 1994).
10.702 Governance Agreement dated as of November 20, 1994 among Ciba-Geigy Limited, Ciba-Geigy Corporation and
Chiron Corporation (initially filed as Exhibit 10.55 of the Registrant's current report on Form 8-K
dated November 20, 1994).
10.703 Subscription Agreement dated as of November 20, 1994 among Ciba-Geigy Limited, Ciba-Geigy Corporation,
Ciba Biotech Partnership, Inc. and Chiron Corporation (initially filed as Exhibit 10.56 of the
Registrant's current report on Form 8-K dated November 20, 1994).
10.704 Cooperation and Collaboration Agreement dated as of November 20, 1994, between Ciba-Geigy Limited and
Chiron Corporation (initially filed as Exhibit 10.57 of the Registrant's current report on Form 8-K
dated November 20, 1994).
10.705 Registration Rights Agreement dated as of November 20, 1994 between Ciba Biotech Partnership, Inc. and
Chiron Corporation (initially filed as Exhibit 10.58 of the Registrant's current report on Form 8-K
dated November 20, 1994).
10.706 Market Price Option Agreement dated as of November 20, 1994 among Ciba-Geigy Limited, Ciba-Geigy
Corporation, Ciba Biotech Partnership, Inc. and Chiron Corporation (initially filed as Exhibit 10.59 of
the Registrant's current report on Form 8-K dated November 20, 1994).
27 Financial Data Schedule for the Six Months ended June 30, 1999.
27.1 Financial Data Schedule for the Three Months ended March 31, 1999.
27.2 Financial Data Schedule for Fiscal Year ended January 3, 1999.
27.3 Finanical Data Schedule for the Six Months ended June 28, 1998.
27.4 Financial Data Schedule for the Three Months ended March 29, 1998.
</TABLE>
- ------------------------
* Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
30
<PAGE>
CHIRON CORPORATION
JUNE 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
CHIRON CORPORATION
DATE: August 12, 1999 BY: /s/ SEAN P. LANCE
------------------------------------------
Sean P. Lance
Chairman; President and
Chief Executive Officer
DATE: August 12, 1999 BY: /s/ JAMES R. SULAT
------------------------------------------
James R. Sulat
Vice President; Chief Financial Officer
DATE: August 12, 1999 BY: /s/ DAVID V. SMITH
------------------------------------------
David V. Smith
Vice President; Controller and
Principal Accounting Officer
</TABLE>
31
<PAGE>
CHIRON CORPORATION
AMENDED AND RESTATED BYLAWS
INDEX
<TABLE>
<S> <C> <C>
ARTICLE I OFFICES AND OTHER ARRANGEMENT . . . . . . . . . . . . . . .1
1.1 Registered Office . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Governance Agreement. . . . . . . . . . . . . . . . . . . .1
ARTICLE II MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . .2
2.1 Place . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Annual Meetings . . . . . . . . . . . . . . . . . . . . . .2
2.3 Annual Meeting Notice . . . . . . . . . . . . . . . . . . .2
2.4 List of Stockholders Entitled to Vote . . . . . . . . . . .2
2.5 Special Meetings. . . . . . . . . . . . . . . . . . . . . .3
2.6 Special Meeting Notice. . . . . . . . . . . . . . . . . . .3
2.7 Special Meeting Business. . . . . . . . . . . . . . . . . .3
2.8 Quorum and Adjourned Meetings . . . . . . . . . . . . . . .3
2.9 Votes Required. . . . . . . . . . . . . . . . . . . . . . .4
2.10 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.11 Consent to Shareholder Action . . . . . . . . . . . . . . .5
2.12 Nomination of Directors . . . . . . . . . . . . . . . . . .5
2.13 Stockholder Proposals . . . . . . . . . . . . . . . . . . .6
ARTICLE III BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . .6
3.1 Number, Tenure and Qualification. . . . . . . . . . . . . .6
3.2 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . .7
3.3 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.4 Place of Meetings . . . . . . . . . . . . . . . . . . . . .8
3.5 First Meeting . . . . . . . . . . . . . . . . . . . . . . .8
3.6 Regular Meetings. . . . . . . . . . . . . . . . . . . . . .8
3.7 Special Meetings. . . . . . . . . . . . . . . . . . . . . .8
3.8 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.9 Action without Meeting. . . . . . . . . . . . . . . . . . .9
3.10 Participation by Telephone. . . . . . . . . . . . . . . . .9
3.11 Committees. . . . . . . . . . . . . . . . . . . . . . . . 10
3.12 Committee Minutes . . . . . . . . . . . . . . . . . . . . 10
3.13 Compensation of Directors . . . . . . . . . . . . . . . . 10
3.14 Removal of Directors. . . . . . . . . . . . . . . . . . . 11
3.15 Approval Required for Certain Actions . . . . . . . . . . 11
3.16 Strategic Planning Process. . . . . . . . . . . . . . . . 11
3.17 Operating Planning Process. . . . . . . . . . . . . . . . 11
<PAGE>
3.18 Measurement Standards . . . . . . . . . . . . . . . . . . 12
ARTICLE IV NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Delivery. . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Number. . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Appointment . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Other Officers. . . . . . . . . . . . . . . . . . . . . . 13
5.4 Salaries. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Term; Vacancies . . . . . . . . . . . . . . . . . . . . . 14
5.6 Chairman. . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Vice Chairman . . . . . . . . . . . . . . . . . . . . . . 14
5.8 President . . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Execution of Documents. . . . . . . . . . . . . . . . . . 14
5.10 Vice President. . . . . . . . . . . . . . . . . . . . . . 15
5.11 Secretary . . . . . . . . . . . . . . . . . . . . . . . . 15
5.12 Assistant Secretary . . . . . . . . . . . . . . . . . . . 16
5.13 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . 16
5.14 Disbursement of Funds; Reports. . . . . . . . . . . . . . 16
5.15 Bond. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.16 Assistant Treasurer . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . . 17
6.1 Certificate of Stock. . . . . . . . . . . . . . . . . . . 17
6.2 Facsimile Signatures. . . . . . . . . . . . . . . . . . . 18
6.3 Lost Certificates . . . . . . . . . . . . . . . . . . . . 19
6.4 Transfer of Stock . . . . . . . . . . . . . . . . . . . . 19
6.5 Fixing Record Date. . . . . . . . . . . . . . . . . . . . 19
6.6 Registered Stockholders . . . . . . . . . . . . . . . . . 20
ARTICLE VII GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . 20
7.1 Dividends . . . . . . . . . . . . . . . . . . . . . . . . 20
7.2 Reserves. . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Checks. . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 21
7.5 Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.6 Indemnification . . . . . . . . . . . . . . . . . . . . . 21
7.7 Books and Records . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
CHIRON CORPORATION
ARTICLE I
OFFICES AND OTHER ARRANGEMENT
1.1 REGISTERED OFFICE. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
1.3 GOVERNANCE AGREEMENT. The Corporation is party to that certain
Governance Agreement dated as of November 20, 1994 (as the same shall be amended
from time to time, the "Governance Agreement") among CIBA-GEIGY Limited, a
corporation organized under the laws of Switzerland, Ciba-Geigy Corporation, a
New York corporation, and the Corporation. The Governance Agreement contains
certain provisions regarding the ongoing governance and operations of the
Corporation, which are incorporated in these Bylaws as provided below. All
capitalized terms used in these Bylaws and not otherwise defined herein shall
have the meanings assigned to them in the Governance Agreement.
<PAGE>
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE. All meetings of the stockholders for the election of
directors shall be held in the City of Emeryville, State of California, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
2.2 ANNUAL MEETINGS. Annual meetings of stockholders shall be held on
the third Thursday in May if not a legal holiday, and, if a legal holiday, then
on the next secular day following, at 10:00 A.M., or such other date and time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, at which the stockholders shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
2.3 ANNUAL MEETING NOTICE. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
2.4 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder
2
<PAGE>
and the number of shares registered in the name of each stockholder. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where the meeting is to
be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.5 SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be
called by the President or Secretary at the request in writing of a majority
of the Board of Directors. Such request shall state the purpose or purposes
of the proposed meeting.
2.6 SPECIAL MEETING NOTICE. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes
for which the meeting is called, shall be given not less than ten (10) nor
more than sixty (60) days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
2.7 SPECIAL MEETING BUSINESS. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
2.8 QUORUM AND ADJOURNED MEETINGS. The holders of a majority of
the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business, except as otherwise
provided by statute or by the certificate of
3
<PAGE>
incorporation. If, however, such quorum shall not be present or represented
at any meeting of the stockholders, the stockholders entitled to vote thereat
who are present in person or represented by proxy shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may
be transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.9 VOTES REQUIRED. When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, provided, however, that the vote of the holders of a majority of the
stock having voting power present in person or represented by proxy and
actually voting on the merits of the question and not abstaining or
withholding authority to vote shall decide the election of any director and
any question submitted for a vote by act of the Board of Directors, pursuant
to Section 3.8 of the Bylaws provided, further, however, that if the question
is one upon which by express provision of law or of the Certificate of
Incorporation or these Bylaws, a different vote is required, such express
provision shall govern and control the decision of such question.
2.10 VOTING. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person
4
<PAGE>
or by proxy for each share of the capital stock having voting power held by
such stockholder, but no proxy shall be voted on after three (3) years from
its date, unless the proxy provides for a longer period.
2.11 CONSENT TO SHAREHOLDER ACTION. Unless otherwise provided in
the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
2.12 NOMINATION OF DIRECTORS. Nominations for election to the Board
of Directors must be made by the Board of Directors or by any stockholder of
any outstanding class of capital stock of the Corporation entitled to vote
for the election of directors. Nominations, other than those made by the
Board of Directors of the Corporation, must be preceded by notification in
writing in fact received by the Secretary of the Corporation not less than
twenty (20) days prior to any meeting of stockholders called for the election
of directors. Such notification shall contain the written consent of each
proposed nominee to serve as a director if so elected and the following
information as to each proposed nominee and as to each person, acting alone
or in conjunction with one or more other persons as a partnership, limited
partnership,
5
<PAGE>
syndicate or other group, who participates or is expected to participate in
making such nomination or in organizing, directing or financing such
nomination or solicitation of proxies to vote for the nominee.
2.13 STOCKHOLDER PROPOSALS. Proposals regarding matters other than
nomination of directors and other than those made by the Board of Directors
of the Corporation, must be preceded by notification in writing in fact
received by the Secretary of the Corporation not less than twenty (20) days
prior to any annual meeting of stockholders. Such notification shall contain
the following information as to the proposed action:
(a) a description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting,
(b) the name and address as they appear on the corporation's books of
the stockholder proposing such business,
(c) the class and number of shares of the corporation which are
beneficially owned by such stockholder, and
(d) any material interest of such stockholder in such business.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a matter not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
ARTICLE III
BOARD OF DIRECTORS
3.1 NUMBER, TENURE AND QUALIFICATION. The number of directors which
shall constitute the whole board shall be eleven (11); provided, however, that
the number of
6
<PAGE>
directors shall be increased to twelve (12) effective as of May 14, 1999, and
provided further, however, that the number of directors shall be reduced to
eleven (11) effective as of the date upon which is held the first annual
general meeting of stockholders at which directors are elected in or after
the year 2000.* Section 2.01 of the Governance Agreement sets forth certain
provisions regarding the number, tenure and qualification of directors, which
provisions are incorporated herein and made a part of these Bylaws. Subject
to said Section 2.01 and except as otherwise provided in Section 3.2 of this
Article III, the number of directors shall be determined by resolution of the
Board of Directors or by the stockholders at the annual meeting of the
stockholders, and each director elected shall hold office until his or her
successor is elected and qualified or until his earlier resignation, removal
from office, death or incapacity. Directors need not be stockholders.
[*AMENDED AS OF MAY 14, 1999]
3.2 VACANCIES. Section 2.01 of the Governance Agreement sets forth
certain provisions regarding filling vacancies and newly created
directorships on the Board of Directors, which provisions are incorporated
herein and made a part of these Bylaws. All vacancies and newly created
directorships shall be filled in accordance with the terms of said Section
2.01.
3.3 POWERS. The business of the Corporation shall be managed by or
under the direction of its Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Certificate of Incorporation or by these Bylaws directed
or required to be exercised or done by the stockholders.
7
<PAGE>
3.4 PLACE OF MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the
State of Delaware.
3.5 FIRST MEETING. The first meeting of each newly elected Board
of Directors shall be held at such time and place as shall be fixed by the
vote of the stockholders at the annual meeting and no notice of such meeting
shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present. In the event of
the failure of the stockholders to fix the time or place of such first
meeting of the newly elected Board of Directors, or in the event such meeting
is not held at the time and place so fixed by the stockholders, the meeting
may be held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as
shall be specified in a written waiver signed by all of the directors.
3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice of such time and at such place as shall from time
to time be determined by the Board.
3.7 SPECIAL MEETINGS. Special meetings of the Board may be called
by the President on four (4) days' notice to each director by mail or
forty-eight (48) hours' notice to each director either personally or by
telegram; special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of two (2) directors
unless the Board consists of only one director, in which case special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of the sole director.
8
<PAGE>
3.8 QUORUM. At all meetings of the Board a majority of the
authorized number of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except
as may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present.
3.9 ACTION WITHOUT MEETING. (a) Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
(b) Section 2.03(d) of the Governance Agreement sets forth
certain provisions regarding the requirement that action by the committees of
the Board of Directors be taken at a meeting thereof, which provisions are
incorporated herein and made a part of these Bylaws.
3.10 PARTICIPATION BY TELEPHONE. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting
9
<PAGE>
can hear each other, and such participation in a meeting shall constitute
presence in person at the meeting.
3.11 COMMITTEES. Section 2.03 of the Governance Agreement provides
that the following committees of the Board of Directors shall be formed and
administered: (i) an Audit Committee; (ii) a Nominating Committee; (iii) a
Strategic Planning Committee; (iv) a Compensation Committee; and (v) a Stock
Option Plan Administration Committee. Such committees of the Board of
Directors shall be formed, maintained and administered in accordance with the
terms of said Section 2.03 of the Governance Agreement, which provisions are
incorporated herein and made a part of these Bylaws. All committees of the
Board of Directors not specifically provided for in said Section 2.03 shall
be constituted in accordance with Section 2.03(c) of the Governance Agreement.
3.12 COMMITTEE MINUTES. Each committee shall keep regular minutes
of its meetings and report the same to the Board of Directors when required.
3.13 COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall
have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
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3.14 REMOVAL OF DIRECTORS. Section 2.01 of the Governance Agreement
sets forth certain provisions regarding the number, tenure and qualification
of directors, which provisions are incorporated herein and made a part of
these Bylaws. Subject to said Section 2.01 and unless otherwise restricted
by the Certificate of Incorporation or by these Bylaws, any director or the
entire Board of Directors may be removed, with or without cause, by the
holders of a majority of shares entitled to vote at an election of directors.
3.15 APPROVAL REQUIRED FOR CERTAIN ACTIONS. Section 2.04 of the
Governance Agreement sets forth certain approval rights for Ciba and the
Investor Directors with respect to certain actions proposed to be taken or
affected by the Corporation or any of its Subsidiaries. Neither the
Corporation nor any of its Subsidiaries shall take or effect any of such
actions without having first obtained such approvals.
3.16 STRATEGIC PLANNING PROCESS. Section 2.10 of the Governance
Agreement sets forth certain provisions regarding the preparation from time
to time of a three-year Strategic Plan by the management of the Corporation
and the consideration and approval of such Strategic Plan by the Board of
Directors, which provisions are incorporated herein and made a part of these
Bylaws.
3.17 OPERATING PLANNING PROCESS. Section 2.11 of the Governance
Agreement sets forth certain provisions regarding the preparation from time
to time of an Operating Plan by the management of the Corporation and the
consideration and approval of such Operating Plan by the Board of Directors,
which provisions are incorporated herein and made a part of these Bylaws.
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3.18 MEASUREMENT STANDARDS. Section 2.12 of the Governance
Agreement sets forth certain provisions regarding the adoption of Measurement
Standards by the Board of Directors for each fiscal year. In addition, such
Section 2.12 sets forth certain provisions regarding approval rights and
procedures to be followed in the event that Measurement Standards shall not
have been approved by the Board of Directors in a timely manner or in the
event that the Measurement Standards shall not have been met at any time by
the Corporation. Said provisions are incorporated herein and made a part of
these Bylaws.
ARTICLE IV
NOTICES
4.1 DELIVERY. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation or of these Bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail addressed
to such director or stockholder at his address as it appears on the records
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
4.2 WAIVER. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
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ARTICLE V
OFFICERS
5.1 NUMBER. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President and a Secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more
Vice Presidents, Assistant Secretaries, Treasurers, and Assistant Treasurers.
Any number of offices may be held by the same person, unless the Certificate
of Incorporation or these Bylaws otherwise provide.
5.2 APPOINTMENT. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a President and a Secretary
and may choose a Vice President and a Treasurer. Nothing in these Bylaws
shall limit the authority of the Board of Directors to determine from time to
time the powers and duties of any officer, employee or agent of the
Corporation.
5.3 OTHER OFFICERS. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices
for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
5.4 SALARIES. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
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5.5 TERM; VACANCIES. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the Corporation may only be filled by the Board of
Directors.
5.6 CHAIRMAN. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors at which the Chairman shall be
present. The Chairman shall have and may exercise such powers as are, from
time to time, assigned to the Chairman by the Board of Directors and as may
be provided by law.
5.7 VICE CHAIRMAN. The Vice Chairman shall have and may exercise
such powers as are from time to time assigned to the Vice Chairman by the
Board of Directors. In the absence of the Chairman of the Board, the Vice
Chairman of the Board shall preside at all meetings of the Board of Directors
at which the Vice Chairman shall be present.
5.8 PRESIDENT. The President shall be the Chief Executive Officer
of the Corporation and may exercise such powers as are, from time to time,
assigned to the President by the Board of Directors.
5.9 EXECUTION OF DOCUMENTS. The President shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the
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signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
5.10 VICE PRESIDENT. In the absence of the President or in the
event that the President is unable or refuses to act, the Vice President, if
any (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election), shall
perform the duties of the President, and when so acting, shall have all of
the powers of and be subject to all of the restrictions upon the President.
The Vice President shall perform such other duties and shall have such other
powers as the President may from time to time prescribe.
5.11 SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors or President, under whose supervision the Secretary
shall be. The Secretary shall have custody of the corporate seal of the
Corporation and the Secretary, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the Secretary's signature or by the signature
of such Assistant Secretary. The Board of
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Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by such officer's signature.
5.12 ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in order of their
election) shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such
other powers as the President may from time to time prescribe.
5.13 TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors.
5.14 DISBURSEMENTS OF FUNDS; REPORTS. The Treasurer shall disburse
the funds of the Corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the
President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation.
5.15 BOND. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond (which shall be renewed every six years) in
such sum and with sure surety or sureties as shall be satisfactory to the
Board of Directors for the faithful
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performance of the duties of that office and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property
of whatever kind in possession or under control of the Treasurer belonging to
the Corporation.
5.16 ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by
the Board of Directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the Treasurer or in the
event of the Treasurer's inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other powers as
the President may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
6.1 CERTIFICATE OF STOCK. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the Chairman or Vice Chairman of the Board of Directors, or
the President or a Vice President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by such stockholder in the Corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total
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amount of the consideration to be paid therefor, and the amount paid thereon
shall be specified.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the Corporation shall issue to represent such
class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
6.2 FACSIMILE SIGNATURES. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar as of
the date of issue.
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6.3 LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board
of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
6.4 TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
6.5 FIXING RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors
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may fix, in advance, a record date, which shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. The record date for determining
stockholders entitled to give consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall
be the day on which the first written consent is given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
6.6 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the
owner of shares and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
7.1 DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
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7.2 RESERVES. Before payments of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation,
or for such other purposes as the directors shall think conducive to the
interest of the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.
7.3 CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
7.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
7.5 SEAL. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the Corporation and the year of its
organization. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
7.6 INDEMNIFICATION. The Corporation shall indemnify to the full
extent permitted by, and in the manner permissible under, the laws of the
State of Delaware any person made, or threatened to be made, a party to an
action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person, his testator or
intestate is or was a director of the Corporation or any
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predecessor of the Corporation or served any other enterprise as a director
or officer at the request of the Corporation or any predecessor of the
Corporation. Expenses incurred by a director of the Corporation in defending
a civil or criminal action, suit or proceeding by reason of the fact that
such director is or was a director of the Corporation (or was serving at the
Corporation's request as a director or officer of another corporation) shall
be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director to repay such amount if it shall ultimately be determined that
such director is not entitled to be indemnified by the Corporation as
authorized by relevant sections of the General Corporation Law of Delaware.
The foregoing provisions of this Article VII shall be deemed to be a
contract between the Corporation and each director who serves in such
capacity at any time while this Bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole
or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the Corporation to indemnify any person, other than a director, made a party
to any action, suit or proceeding by reason of the fact that such person, his
testator or intestate, is or was an officer or employee of the Corporation.
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The foregoing rights of indemnification shall not be deemed exclusive
of any other right to which any director may be entitled apart from the
provisions of this Article VII.
7.7 BOOKS AND RECORDS. Any stockholder or any director shall have
the right to inspect the books and records of the Corporation to the full
extent permitted by, and subject to the terms and conditions of, the General
Corporation Law of Delaware.
ARTICLE VIII
AMENDMENTS
8.1 These Bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors, when such
power is conferred upon the Board of Directors by the Certificate of
Incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
Certificate of Incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws. Notwithstanding any provision
in these Bylaws to the contrary, in no event so long as the Governance
Agreement shall be in effect shall any provision of these Bylaws be altered,
amended or repealed or new bylaws adopted by the stockholders or by the Board
of Directors in a manner that would be inconsistent with the terms and
conditions of the Governance Agreement.
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Exhibit 4.01
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CETUS CORPORATION
TO
BANKERS TRUST COMPANY,
TRUSTEE
----------------------
INDENTURE
Dated as of May 21, 1987
------------------
U.S. $100,000,000
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2002
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TABLE OF CONTENTS
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PARTIES................................................... 1
RECITALS OF THE COMPANY................................... 1
ARTICLE ONE
Definitions and Other Provisions of
General Application
Section 101. Definitions:
Act.......................................... 2
Affiliate; control........................... 2
Authenticating Agent......................... 2
Authorized Newspaper......................... 2
Bearer Security.............................. 2
Board of Directors........................... 3
Board Resolution............................. 3
Business Day................................. 3
Closing Market Price Per Share............... 3
Common Stock................................. 3
Company...................................... 4
Company Request; Company Order............... 4
Conversion Agent............................. 4
Conversion Price............................. 4
Converted Securities......................... 4
Corporate Trust Office....................... 4
corporation.................................. 4
coupon....................................... 4
Defaulted Interest........................... 4
Dollar; U.S.$................................ 4
Event of Default............................. 5
Exchange Date................................ 5
Global Security.............................. 5
Holder....................................... 5
Indenture.................................... 5
Interest Payment Date........................ 5
Maturity..................................... 5
Officers' Certificate........................ 5
Opinion of Counsel........................... 5
Outstanding.................................. 5
Paying Agent................................. 6
Paying Agency Agreement...................... 7
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NOTE: This table of contents shall not, for any purpose, be deemed part of
the Indenture.
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Section 101. Definitions:
Person....................................... 7
Place of Conversion.......................... 7
Place of Payment............................. 7
Predecessor Security......................... 7
Principal Office............................. 7
Principal Paying Agent....................... 7
Redemption Date.............................. 7
Redemption Price............................. 7
Registered Security.......................... 7
Regular Record Date.......................... 8
Responsible Officer.......................... 8
Rights....................................... 8
SBCI......................................... 8
Security Register; Security Registrar........ 8
Senior Debt.................................. 8
Special Record Date.......................... 9
Stated Maturity.............................. 9
Subsidiary................................... 9
Transfer Agent............................... 9
Trustee...................................... 9
United States................................ 9
United States Alien.......................... 9
United States Bank Branch.................... 9
United States Institutional Investor......... 9
Vice President............................... 10
Section 102. Form of Documents Delivered to Trustee....... 10
Section 103. Acts of Holders of Securities................ 10
Section 104. Notices, Etc., to Trustee and Company........ 12
Section 105. Notice to Holders of Securities; Waiver...... 13
Section 106. Effect of Headings and Table of Contents..... 14
Section 107. Successors and Assigns....................... 14
Section 108. Separability Clause.......................... 15
Section 109. Benefits of Indenture........................ 15
Section 110. Governing Law; Submission to Jurisdiction.... 15
Section 111. Legal Holidays............................... 15
ARTICLE TWO
Security Forms
Section 201. Forms Generally.............................. 17
Section 202. Forms of Definitive Securities............... 17
Section 203. Form of Temporary Global Security............ 34
Section 204. Form of Coupon............................... 37
Section 205. Form of Trustee's Certificate of
Authentication............................. 40
Section 206. Form of Conversion Notice.................... 40
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ARTICLE THREE
The Securities
Section 301. Title and Terms.............................. 42
Section 302. Denominations................................ 42
Section 303. Execution, Authentication, Delivery and
Dating..................................... 43
Section 304. Temporary Global Security; Exchange of
Temporary Global Security for Definitive
Securities................................. 44
Section 305. Registration, Registration of Transfer and
Exchange................................... 46
Section 306. Mutilated, Destroyed, Lost or Stolen
Securities and Coupons..................... 49
Section 307. Payment of Interest; Interest Rights
Preserved.................................. 50
Section 308. Persons Deemed Owners........................ 53
Section 309. Cancellation................................. 53
Section 310. Computation of Interest...................... 54
ARTICLE FOUR
Satisfaction and Discharge
Section 401. Satisfaction and Discharge of Indenture...... 55
Section 402. Application of Trust Money................... 56
ARTICLE FIVE
Remedies
Section 501. Events of Default............................ 58
Section 502. Acceleration of Maturity; Rescission and
Annulment.................................. 60
Section 503. Collection of Indebtedness and Suits for
Enforcement by Trustee..................... 61
Section 504. Trustee May File Proofs of Claim............. 62
Section 505. Trustee May Enforce Claims Without
Possession of Securities or Coupons........ 63
Section 506. Application of Money Collected............... 63
Section 507. Limitation on Suits.......................... 64
Section 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest and to
Convert.................................... 65
Section 509. Restoration of Rights and Remedies........... 65
Section 510. Rights and Remedies Cumulative............... 66
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Section 511. Delay or Omission Not Waiver................. 66
Section 512. Control by Holders of Securities............. 66
Section 513. Waiver of Past Defaults...................... 67
Section 514. Undertaking for Costs........................ 67
Section 515. Waiver of Stay or Extension Laws............. 68
ARTICLE SIX
The Trustee
Section 601. Certain Duties and Responsibilities.......... 69
Section 602. Certain Rights of Trustee.................... 70
Section 603. Not Responsible for Recitals or Issuance of
Securities................................. 71
Section 604. May Hold Securities, Act as Trustee Under
Other Indentures........................... 72
Section 605. Money Held in Trust.......................... 72
Section 606. Compensation and Reimbursement............... 72
Section 607. Corporate Trustee Required; Eligibility...... 73
Section 608. Resignation and Removal; Appointment of
Successor.................................. 74
Section 609. Acceptance of Appointment by Successor....... 75
Section 610. Merger, Conversion, Consolidation or
Succession to Business..................... 76
Section 611. Appointment of Authenticating Agent.......... 76
ARTICLE SEVEN
Consolidation, Merger, Conveyance, Transfer
or Lease
Section 701. Company May Consolidate, Etc., Only on
Certain Terms.............................. 79
Section 702. Successor Substituted........................ 80
ARTICLE EIGHT
Supplemental Indentures
Section 801. Supplemental Indentures Without Consent of
Holders.................................... 81
Section 802. Supplemental Indentures with Consent of
Holders.................................... 81
Section 803. Execution of Supplemental Indentures......... 83
Section 804. Effect of Supplemental Indentures............ 83
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Section 805. Reference in Securities to Supplemental
Indentures................................. 83
Section 806. Notice of Supplemental Indentures............ 83
ARTICLE NINE
Meetings of Holders of Securities
Section 901. Purposes for Which Meetings May Be Called.... 85
Section 902. Call, Notice and Place of Meetings........... 85
Section 903. Persons Entitled to Vote at Meetings......... 86
Section 904. Quorum; Action............................... 86
Section 905. Determination of Voting Rights; Conduct and
Adjournment of Meetings.................... 87
Section 906. Counting Votes and Recording Action of
Meetings................................... 88
ARTICLE TEN
Covenants
Section 1001. Payment of Principal, Premium and
Interest.................................. 89
Section 1002. Maintenance of Offices or Agencies.......... 89
Section 1003. Money for Security Payments to Be Held in
Trust..................................... 91
Section 1004. Additional Interest......................... 93
Section 1005. Corporate Existence......................... 94
Section 1006. Maintenance of Properties................... 94
Section 1007. Payment of Taxes and Other Claims........... 95
Section 1008. Statement of Officers as to Default......... 95
Section 1009. Waiver of Certain Covenants................. 95
Section 1010. Waiver of Usury Laws........................ 96
ARTICLE ELEVEN
Redemption of Securities
Section 1101. Right of Redemption......................... 97
Section 1102. Applicability of Article.................... 97
Section 1103. Election to Redeem; Notice to Trustee....... 97
Section 1104. Selection by Trustee of Securities to Be
Redeemed.................................. 98
Section 1105. Notice of Redemption........................ 99
Section 1106. Deposit of Redemption Price.................. 100
Section 1107. Securities Payable on Redemption Date........ 100
Section 1108. Registered Securities Redeemed in Part....... 101
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ARTICLE TWELVE
Conversion of Securities
Section 1201. Conversion Privilege and Conversion Price... 103
Section 1202. Exercise of Conversion Privilege............ 103
Section 1203. Fractions of Shares......................... 105
Section 1204. Adjustment of Conversion Price.............. 105
Section 1205. Notice of Adjustments of Conversion Price... 109
Section 1206. Notice of Certain Corporation Action........ 109
Section 1207. Company to Reserve Common Stock............. 111
Section 1208. Taxes on Conversions........................ 111
Section 1209. Covenant as to Common Stock................. 111
Section 1210. Cancellation of Converted Securities........ 112
Section 1211. Provisions in Case of Consolidation,
Merger, Sale of Assets or
Reclassification.......................... 112
Section 1212. Responsibility of Trustee for Conversion
Provisions................................ 113
ARTICLE THIRTEEN
Subordination of Securities
Section 1301. Securities Subordinate to Senior Debt....... 115
Section 1302. Payment Over of Proceeds Upon Dissolution,
Etc....................................... 115
Section 1303. Prior Payment to Senior Debt Upon
Acceleration of Securities................ 116
Section 1304. No Payment When Senior Debt in Default...... 117
Section 1305. Payment Permitted If No Default............. 118
Section 1306. Subrogation to Rights of Holders of Senior
Debt...................................... 118
Section 1307. Provisions Solely to Define Relative
Rights.................................... 119
Section 1308. Trustee to Effectuate Subordination......... 120
Section 1309. No Waiver of Subordination Provisions....... 120
Section 1310. Notice to Trustee........................... 120
Section 1311. Reliance on Judicial Order or Certificate
of Liquidating Agent...................... 121
Section 1312. Trustee Not Fiduciary for Holders of Senior
Debt...................................... 122
Section 1313. Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights.......... 122
Section 1314. Article Applicable to Paying Agents......... 122
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TESTIMONIUM............................................... 124
SIGNATURES AND SEALS...................................... 125
ACKNOWLEDGEMENTS.......................................... 126
EXHIBIT A Form of certificate to be given by Euro-clear
and CEDEL S.A.
EXHIBIT B Form of certificate to be given by Account Holders
EXHIBIT C Form of Investment Letter for U.S. Bank Branch
EXHIBIT D Form of certificate to be given by SBCI
EXHIBIT E Form of letter delivered by United States
Institutional Investors, to be attached to the
certificate given by SBCI
</TABLE>
vii
<PAGE>
INDENTURE, dated as of May 21, 1987, between CETUS CORPORATION, a
corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 1400
Fifty-Third Street, Emeryville, California 94608, and Bankers Trust Company,
a New York State banking corporation having its principal corporate trust and
agency office at Four Albany Street, New York, New York 10015, Trustee
(herein called the "Trustee").
Recitals of the Company
The Company has duly authorized the creation of an issue of its
5 1/4 per cent. Convertible Subordinated Debentures due 2002 (herein called the
"Securities") and the coupons, if any, thereto appertaining, of substantially
the tenor and amount hereinafter set forth, and to provide therefor the
Company has duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities and the coupons, if
any, thereto appertaining, when the Securities are executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms, have been
done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities and the
coupons, if any, thereto appertaining, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
<PAGE>
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles in the United States of America, and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are
generally accepted in the United States of America at the date of such
computation; and
(3) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act", when used with respect to any Holder of a Security, has the
meaning specified in Section 103.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 611.
"Authorized Newspaper" means a newspaper, in an official language
of the country of publication or in the English language, customarily
published on each Business Day, whether or not published on Saturdays,
Sundays or holidays, and of general circulation in the place in connection
with which the term is used or in the financial community of such place.
Where successive publications are required to be made in Authorized
Newspapers, the successive publications may be made in the same or in
different newspapers in the same city meeting the foregoing requirements and
in each case on any Business Day.
"Bearer Security" means any Security in the form for Bearer
Securities set forth in Section 202 payable to bearer.
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<PAGE>
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant
Secretary of the Company to be in full force and effect on the date of such
certification, shall have been delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment or
Place of Conversion, means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in that Place of
Payment or Place of Conversion, as the case may be, (or on which banking
institutions in London or New York) are authorized or obligated by law to
close.
"Closing Market Price Per Share" means, for any trading day, the
last reported sales price regular way of the Common Stock or, in case no such
reported sale takes place on such trading day, the average of the reported
closing bid and asked prices regular way of the Common Stock, in either case
on the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national securities
exchange within the United States on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange within the United States, the average of the closing bid
and asked prices of the Common Stock in the over-the-counter market as
reported by National Association of Securities Dealers' Automated Quotation
System ("NASDAQ") or, if not so reported by NASDAQ, the average of the
closing bid and asked prices of the Common Stock as furnished by any leading
New York Stock Exchange member firm selected from time to time by the Company
for that purpose.
"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Company and which is not subject to redemption by the Company. However,
subject to the provisions of Section 1211, shares issuable on conversion of
Securities shall include only shares of the class designated as Common Stock
of the Company at the date of this instrument or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in
3
<PAGE>
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which
are not subject to redemption by the Company; PROVIDED that if at any time
there shall be more than one such resulting class, the shares of each such
class then so issuable shall be substantially in the proportion which the
total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order in the form of an Officers' Certificate.
"Conversion Agent" means any Person authorized by the Company to
convert Securities in accordance with Article Twelve.
"Conversion Price" has the meaning specified in Section 1201.
"Converted Securities" means all Securities which have been
converted pursuant to Article Twelve.
"Corporate Trust Office" means the principal office of the Trustee
in New York City, at which at any particular time its corporate trust
business shall be administered, which office at the date of original
execution of this Indenture is located at 4 Albany Street, New York, New York
10015.
"corporation" includes corporations, associations, companies and
business trusts.
"coupon" means any interest coupon appertaining to a Bearer
Security.
"Defaulted Interest" has the meaning specified in Section 307.
"Dollar" or "U.S. $" means a dollar or other equivalent unit in
such coin or currency of the United
4
<PAGE>
States of America as at the time shall be legal tender for the payment of
public and private debts.
"Event of Default" has the meaning specified in Section 501.
"Exchange Date" means the date 90 days after completion of
distribution of the Securities as advised by SBCI to the Trustee in writing
pursuant to Section 304.
"Global Security" means a temporary security in the form set forth
in Section 203.
"Holder", when used with respect to any Security, means in the case
of a Registered Security the Person in whose name the Security is registered
in the Security Register and in the case of a Bearer Security or the Global
Security the bearer thereof and, when used with respect to any coupon, means
the bearer thereof.
"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an instalment
of interest on the Securities.
"Maturity", when used with respect to any Security, means the date
on which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, the President or a Vice President, and by the Chief Financial
Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably satisfactory to the
Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, EXCEPT:
5
<PAGE>
(i) Securities theretofore cancelled by the Trustee or Principal
Paying Agent or delivered to the Trustee or Principal Paying Agent for
cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities and any coupons thereto
appertaining; PROVIDED that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture
or provision therefor satisfactory to the Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee or Principal Paying Agent proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities are present at a meeting of
Holders of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities
owned by the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such determination as to the presence
of a quorum or upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Company or any other obligor
upon the Securities or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay
the principal of and premium, if any, or
6
<PAGE>
interest on any Securities on behalf of the Company (which term shall
include, except where the context otherwise requires, the Principal Paying
Agent).
"Paying Agency Agreement" means the Paying Agency Agreement, dated
as of May 21, 1987, between the Company, the Principal Paying Agent and the
Paying Agents, Conversion Agents and Transfer Agents named therein.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Place of Conversion" has the meaning specified in Section 301.
"Place of Payment" has the meaning specified in Section 301.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost
or stolen Security.
"Principal Office" means the principal office of the Principal
Paying Agent in New York City at which at any particular time corporate trust
services are administered.
"Principal Paying Agent" means any Person appointed by the Company
as Principal Paying Agent.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registered Security" means any Security in the form for Registered
Securities set forth in Section 202 registered in the Security Register.
7
<PAGE>
"Regular Record Date" for the interest payable on any Interest
Payment Date means the May 7 (whether or not a Business Day) next preceding
each such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
any officer within the Corporate Trust and Agency Group (or any successor
group of the Trustee) including any vice president, assistant vice president,
assistant secretary or any other officer or assistant officer of the Trustee
customarily performing functions similar to those performed by the persons
who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred at the Corporate Trust Office because of
his knowledge of and familiarity with the particular subject.
"Rights" has the meaning specified in Section 1204(3).
"SBCI" means Swiss Bank Corporation International Limited.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Debt" means the present and future principal of and premium,
if any, and interest on (a) indebtedness of the Company for money borrowed
evidenced by bonds, notes, debentures or similar obligations, including any
guaranty by the Company of any indebtedness for money borrowed of any other
Person, whether outstanding on the date of the Indenture or thereafter
created, assumed or incurred; (b) indebtedness incurred, assumed or
guaranteed by the Company in connection with the acquisition by it or a
Subsidiary of any other businesses, properties or other assets (except
purchase-money indebtedness classified as accounts payable under generally
accepted accounting principles); (c) obligations of the Company as lessee
under leases required to be capitalized on the balance sheet of the lessee
under generally accepted accounting principles and leases of property or
assets made as part of any sale and lease-back transaction to which the
Company is a party; (d) reimbursement obligations in respect of letters of
credit relating to indebtedness or other obligations of the Company that
qualify as Senior Debt; and (e) any refundings, renewals or extensions of any
indebtedness described in clauses (a), (b), (c) and (d), unless in the
instrument creating or evidencing the indebtedness it is provided that
8
<PAGE>
such indebtedness is not superior in right of payment to the Securities.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
instalment of interest thereon, means the date specified in such Security or
a coupon representing such instalment of interest as the fixed date on which
the principal of such Security or such instalment of interest is due and
payable.
"Subsidiary" means any corporation or other entity at least a
majority of the outstanding voting shares of which is at the date of
determination directly owned or controlled by the Company or any Subsidiary,
or which corporation or entity is otherwise consolidated with the Company
for financial reporting purposes.
"Transfer Agent" means any Person, which may be the Company,
authorized by the Company to exchange or register the transfer of Securities.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"United States" means the United States of America (including the
States and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction.
"United States Alien" has the meaning set forth in the forms of
Definitive Securities contained in Section 202.
"United States Bank Branch" means a branch located outside the
United States of a bank organized under federal or state law in the United
States.
"United States Institutional Investor" means any Person who delivers
the letter in the form of Exhibit E to the Indenture in connection with its
acquisition of Securities and as to whom SBCI delivers the certificate in the
form of Exhibit D to the Indenture.
9
<PAGE>
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
SECTION 102. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such certificate or
opinion is based are erroneous. Any such certificate or opinion of counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company
stating that the information with respect to such factual matters is in the
possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 103. ACTS OF HOLDERS OF SECURITIES.
(a) Any request, demand, authorization, direction, notice, consent,
election, waiver or other action provided by this Indenture to be given or
taken by Holders of Securities may be embodied in and evidenced by (1) one or
more instruments of substantially similar tenor
10
<PAGE>
signed by such Holders in person or by agent or proxy duly appointed in
writing, (2) the record of Holders of Securities voting in favor thereof,
either in person or by proxies duly appointed in writing, at any meeting of
Holders of Securities duly called and held in accordance with the provisions
of Article Nine, or (3) a combination of such instruments and any such
record. Except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments or record or both are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments and record (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the "Act"
of the Holders of Securities signing such instrument or instruments or so
voting at such meeting. Proof of execution of any such instrument or of a
writing appointing any such agent or proxy, or of the holding by any Person
of a Security, shall be sufficient for any purpose of this Indenture and
(subject to Section 601) conclusive in favor of the Trustee and the Company
if made in the manner provided in this Section. The record of any meeting of
Holders of Securities shall be proved in the manner provided in Section 906.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner which the Trustee deems
sufficient.
(c) The principal amount and serial numbers of Bearer Securities
held by any Person, and the date of his holding the same, may be proved by
the production of such Bearer Securities or by a certificate executed, as
depositary, by any trust company, bank, banker or other depositary, wherever
situated, if such certificate shall be deemed by the Trustee to be
satisfactory, showing that at the date therein mentioned such Person had on
deposit with such depositary, or exhibited to it, the Bearer Securities
therein described; or such facts may be proved by the
11
<PAGE>
certificate or affidavit of the Person holding such Bearer Securities, if
such certificate or affidavit is deemed by the Trustee to be satisfactory.
The Trustee and the Company may assume that such ownership of any Bearer
Security continues until (1) another certificate or affidavit bearing a later
date issued in respect of the same Bearer Security is produced, or (2) such
Bearer Security is produced to the Trustee by some other Person, or (3) such
Bearer Security is surrendered in exchange for a Registered Security, or (4)
such Bearer Security is no longer Outstanding.
(d) The fact and date of execution of any such instrument or
writing, the authority of the Person executing the same and the principal
amount and serial numbers of Bearer Securities held by the Person so
executing such instrument or writing and the date of holding the same may
also be proved in any other manner which the Trustee deems sufficient; and
the Trustee may in any instance require further proof with respect to any of
the matters referred to in this Section.
(e) The principal amount and serial numbers of Registered Securities
held by any Person, and the date of his holding the same, shall be proved by
the Security Register.
(f) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued
upon the registration or transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
SECTION 104. NOTICES, ETC., TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent,
election, waiver of Act of Holders of Securities or other document provided
or permitted by this Indenture to be made upon, given or furnished to, or
filed with,
(1) the Trustee by any Holder of Securities or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office, or
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<PAGE>
(2) the Company by the Trustee or by any Holder of Securities shall
be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing, mailed, first-class postage prepaid,
or telexed or telecopied and confirmed by mail, first-class postage
prepaid, addressed to it at the address of its principal office specified
in the first paragraph of this instrument, to the attention of its
Treasurer, or at any other address previously furnished in writing to the
Trustee by the Company.
Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
SECTION 105. NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of Securities of any event (the expense for which
shall be borne by the Company),
(1) such notice shall be sufficiently given to Holders of Bearer
Securities if published in an Authorized Newspaper in London and, so long
as the Securities are listed on the Luxembourg Stock Exchange and such
Exchange so requires, in Luxembourg, on a Business Day not earlier than
the earliest date and not later than the latest date prescribed for the
giving of such notice. If publication in London or Luxembourg is not
practicable, such publication shall be in an Authorized Newspaper
elsewhere in Western Europe; and
(2) such notice shall be sufficiently given to Holders of Registered
Securities if in writing and mailed, first-class postage prepaid, to each
Holder of a Registered Security, at the address of such Holder as it
appears in the Security Register, not earlier than the earliest date, and
not later than the latest date, prescribed for the giving of such notice.
Neither failure to give notice by publication to Holders of Bearer
Securities as provided above, nor any defect in any notice so published,
shall affect the sufficiency of any notice mailed to Holders of Registered
13
<PAGE>
Securities as provided above. In case by reason of the suspension of
publication of any Authorized Newspaper or Authorized Newspapers or by reason
of any other cause it shall be impracticable to publish any notice to Holders
of Bearer Securities as provided above, then such notification to Holders of
Bearer Securities as shall be given with the approval of the Trustee shall
constitute sufficient notice to such Holders for every purpose hereunder.
In any case where notice to Holders of Registered Securities is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder of a Registered Security shall
affect the sufficiency of such notice with respect to other Holders of
Registered Securities or the sufficiency of any notice by publication to
Holders of Bearer Securities given as provided above. In case by reason of
the suspension of regular mail service or by reason of any other cause it
shall be impracticable to give such notice by mail, then such notification to
Holders of Registered Securities as shall be made with the approval of the
Trustee shall constitute a sufficient notification to such Holders for every
purpose hereunder.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee,
but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
SECTION 106. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 107. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
14
<PAGE>
SECTION 108. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Securities or
coupons shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 109. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities or coupons, express
or implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Senior Debt and the Holders of
Securities and coupons, any benefit or any legal or equitable right, remedy
or claim under this Indenture.
SECTION 110. GOVERNING LAW; SUBMISSION TO JURISDICTION.
This Indenture and each of the Securities and coupons shall be
governed by and construed in accordance with the laws of the State of New
York.
The Company hereby submits to the non-exclusive jurisdiction of any
United States Federal or New York State court sitting in New York City solely
for the purpose of any legal action or proceeding brought to enforce the
Company's obligations hereunder or with respect to any Security. As long as
any of the Securities remain outstanding, the Company shall have an
authorized agent in New York City upon whom process may be served in any such
legal action or proceeding. Service of process upon such agent and written
notice of such service mailed or delivered to the Company shall to the extent
permitted by law be deemed in every respect effective service of process upon
the Company in any such legal action or proceeding. The Company hereby
appoints C.T. Corporation System, 1633 Broadway, New York, N.Y. 10019 as its
agent for such purposes, and covenants and agrees that service of process in
any legal action or proceeding may be made upon it at the corporate trust
office or at the principal office in New York City of such agent.
SECTION 111. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, any Redemption Date or
the Stated Maturity of any Security or the last day on which a Holder of a
Security has the right
15
<PAGE>
to convert his Security shall not be a Business Day at any Place of Payment
or Place of Conversion or in London or New York, then (notwithstanding any
other provision of this Indenture or of the Securities or coupons) payment of
interest or principal and premium, if any, or conversion of the Securities
need not be made at such Place of Payment or Place of Conversion on such day,
but may be made on the next succeeding Business Day at such Place of Payment
or Place of Conversion with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated Maturity or on
such last day for conversion, PROVIDED that, in the case of payment, no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case
may be.
16
<PAGE>
ARTICLE TWO
Security Forms
SECTION 201. FORMS GENERALLY.
The Securities and the coupons shall be in substantially the forms
set forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or applicable
law or as may, consistently herewith, be determined necessary or appropriate
by the officers executing such Securities and coupons, as evidenced by their
execution of the Securities.
The Trustee's certificates of authentication shall be in
substantially the form set forth in this Article.
Conversion notices shall be in substantially the form set forth in
this Article.
The definitive Securities and coupons shall be printed, lithographed
or engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner, all as determined by the
officers executing such Securities and coupons, as evidenced by their
execution of such Securities, and in conformity with the requirements of the
Luxembourg Stock Exchange.
SECTION 202. FORMS OF DEFINITIVE SECURITIES.
[FORM OF FACE]
[IF BEARER SECURITY:
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT
TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE
LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE
CODE.
17
<PAGE>
CETUS CORPORATION
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
No. B- U.S. $5,000
CETUS CORPORATION, a corporation duly organized and existing under
the laws of the State of Delaware (herein called the "Company", which term
includes any successor corporation under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to bearer upon
presentation and surrender of this Security the principal sum of Five
Thousand United States Dollars on May 21, 2002 and to pay interest thereon,
from May 21, 1987 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, annually in arrears on May 21 in
each year (each of such dates being an "Interest Payment Date"), commencing
May 21, 1988, at the rate of 5 1/4 per cent. per annum, until the principal
hereof is paid or made available for payment. Such payments (including
premium, if any) shall be made, subject to any laws or regulations applicable
thereto and to the right of the Company (limited as provided in the
Indenture) to terminate the appointment of any such Paying Agent, only at the
main offices of Morgan Guaranty Trust Company of New York in Brussels and
London, Banque Internationale a Luxembourg S.A. in Luxembourg, Algemene Bank
Nederland N.V. in Amsterdam and Swiss Bank Corporation in Basel, or at such
other offices or agencies outside the United States (as defined below) as the
Company may designate and notify the Holder as provided on the reverse
hereof, by United States dollar check drawn on a bank in The City of New
York, or by transfer to a United States dollar account maintained by the
Holder with a bank outside the United States. Interest on this Security due
on or before maturity (but not any additional interest which may be payable
as provided below in respect of principal of, and premium, if any, on, this
Security) shall be payable only upon presentation and surrender at such
office or agency of the interest coupons hereto attached as they severally
mature. No payment of principal, premium or interest with respect to this
Security shall be made at the Corporate Trust Office of the Trustee under the
Indenture or at the Principal Office of the Principal Paying Agent or at any
other office or agency in the United States nor will any such payment be made
by mail to an address in the United States or by transfer to an account in
the United States. Notwithstanding the foregoing, payment of principal of and
premium, if any, and interest on this Security and payment
18
<PAGE>
of any such additional interest may be made at the Principal Office of the
Principal Paying Agent in the Borough of Manhattan, The City of New York if
(but only if) payment of the full amount of such principal, premium, interest
or additional interest, as the case may be, at all offices outside the United
States maintained for the purpose by the Company in accordance with the
Indenture is illegal or effectively precluded because of the imposition of
exchange controls or other similar restrictions on the full payment or
receipt of such amounts in Dollars.]
[IF REGISTERED SECURITY:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE
WITH SUCH ACT. THE TRANSFER OF THIS SECURITY IS SUBJECT TO CERTAIN
RESTRICTIONS AS SET FORTH IN A LETTER TO SWISS BANK CORPORATION INTERNATIONAL
LIMITED AND CETUS CORPORATION EXECUTED BY OR ON BEHALF OF THE HOLDER HEREOF.[*]
THIS SECURITY CANNOT BE EXCHANGED FOR A BEARER SECURITY.
- ----------
* This legend to appear only on Securities privately placed with United
States Institutional Investors and, except as provided in Section 305 of
the Indenture, on Securities issued upon transfer or exchange for such
Securities.
19
<PAGE>
CETUS CORPORATION
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
No. R- U.S. $_________
CETUS CORPORATION, a corporation duly organized and existing under
the laws of the State of Delaware (herein called the "Company", which term
includes any successor corporation under the Indenture referred to on the
reverse hereof), for value received, hereby promises to pay to ______________
______________________________, or registered assigns, the principal sum of
______________________ Thousand United States Dollars on May 21, 2002 and to
pay interest thereon, from May 21, 1987 or the most recent Interest Payment
Date to which interest has been paid or duly provided for, annually in
arrears on May 21 in each year (each of such dates being an "Interest Payment
Date"), commencing May 21, 1988, at the rate of 5 1/4 per cent. per annum,
until the principal hereof is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the May 7 (whether or not a Business Day) next
preceding each such Interest Payment Date. Except as otherwise provided in
the Indenture, any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may
be required by such exchange, all as more fully provided in the Indenture.
Payments of principal of and premium, if any, on this Security shall be made
at the option of the Holder (a) at the office in the Borough of Manhattan,
The City of New York of the Principal Paying Agent, or at such other office
or agency of the Company as may be designated by it for such purpose in the
Borough of Manhattan, The City of New York, not less than three Business Days
prior to the due date for payment, in such coin or currency of
20
<PAGE>
the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts or (b) subject to any laws or
regulations applicable thereto and to the right of the Company (limited as
provided in the Indenture) to terminate the appointment of any such Paying
Agent, at the main offices of Banque Internationale a Luxembourg S.A. in
Luxembourg, or at such other offices or agencies which are both Paying and
Transfer Agents as the Company may designate and notify the Holder as
provided on the reverse hereof, by United States dollar check drawn on, or by
transfer to a United States dollar account maintained by the payee with, a
bank in The City of New York. Payment of interest on this Security shall be
made by United States dollar check drawn on a bank in The City of New York
and mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register, or upon application by the Holder
hereof to the Security Registrar not later than the Regular Record Date in
the year the payment is to be received, by transfer to a United States dollar
account maintained by the payee with a bank in The City of New York.]
The Company will, subject to the exceptions and limitations set
forth below, pay as additional interest to the Holder of a Security or coupon
that is a United States Alien (as defined below) such amounts as may be
necessary so that every net payment on such Security or coupon, after
withholding for or on account of any present or future tax, assessment or
other governmental charge imposed upon or as a result of such payment by the
United States (or any political subdivision or taxing authority thereof or
therein), will not be less than the amount provided in such Security or
coupon to be then due and payable. However, the Company will not be required
to make any payment of additional interest for or on account of:
(a) any tax, assessment or other governmental charge that would not
have been imposed but for (i) the existence of any present or former
connection between such Holder (or between a fiduciary, settlor or
beneficiary of, or a person holding a power over, such Holder, if such
Holder is an estate or a trust, or a member or shareholder of such Holder, if
such Holder is a partnership or corporation) and the United States,
including, without limitation, such Holder (or such fiduciary, settlor,
beneficiary, person holding a power, member or shareholder) being or having
been a citizen or resident thereof or being or having been engaged in trade
or business or present therein or having or having had a permanent
establishment therein,
21
<PAGE>
or (ii) such Holder's past or present status as a personal holding company,
foreign personal holding company or private foundation or other tax-exempt
organization for purposes of United States federal income tax or as a
corporation that accumulates earnings to avoid United States federal income
tax;
(b) any estate, inheritance, gift, sales, transfer or personal
property tax or any similar tax, assessment or other governmental charge;
(c) any tax, assessment or other governmental charge that would not
have been imposed but for the presentation by the Holder of a Security or
coupon for payment more than 15 days after the date on which such payment
became due and payable or the date on which payment thereof was duly provided
for, whichever occurred later;
(d) any tax, assessment or other governmental charge that is
payable otherwise than by withholding from a payment on a Security or coupon;
(e) any tax, assessment or other governmental charge required to be
withheld by any Paying Agent from a payment on a Security or coupon, if such
payment can be made without such withholding by any other Paying Agent;
(f) any tax, assessment or other governmental charge that would not
have been imposed but for a failure to comply with applicable certification,
information, documentation or other reporting requirements concerning the
nationality, residence, identity or connection with the United States (or any
political subdivision thereof) of the Holder or beneficial owner of a
Security or coupon if, without regard to any tax treaty, such compliance is
required by statute or regulation of the United States (or any political
subdivision or taxing authority thereof or therein) as a precondition to
relief or exemption from such tax, assessment or other governmental charge; or
(g) any tax, assessment or other governmental charge imposed on a
Holder that actually or constructively owns 10 per cent. or more of the
combined voting power of all classes of voting stock of the Company or that
is a controlled foreign corporation related to the Company through stock
ownership;
nor shall additional interest be paid with respect to a payment on a Security
or coupon to a Holder that is a
22
<PAGE>
fiduciary or partnership or other than the sole beneficial owner of such
payment to the extent such payment would be required by the laws of the United
States (or any political subdivision thereof) to be included in the income for
tax purposes of a beneficiary or settlor with respect to such fiduciary or a
member of such partnership or a beneficial owner that would not have been
entitled to the additional interest had such beneficiary, settlor, member or
beneficial owner been the Holder of such Security or coupon.
The term "United States Alien" means any person who, for United States
federal income tax purposes, is a foreign corporation, a non-resident alien
individual, a non-resident alien fiduciary of a foreign estate or trust, or a
foreign partnership one or more of the members of which is, for United States
federal income tax purposes, a foreign corporation, a non-resident alien
individual or a non-resident alien fiduciary of a foreign estate or trust. The
term "United States" means the United States of America (including the States
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
If and so long as the certification, documentation, information or other
reporting requirement referred to in the fourth paragraph on the reverse hereof
would be fully satisfied by payment of a backup withholding tax or similar
charge, the Company may elect to pay as additional interest such amounts as may
be necessary so that every net payment made outside the United States following
the effective date of such requirement by the Company or any of its Paying
Agents in respect of any Bearer Security or any coupon of which the beneficial
owner is a United States Alien (but without any requirement that the
nationality, residence or identity of such beneficial owner be disclosed to the
Company, any Paying Agent or any governmental authority), after deduction or
withholding for or on account of such backup withholding tax or similar charge
(other than a backup withholding tax or similar charge which (i) would not be
applicable in the circumstances referred to in the second parenthetical clause
of the first sentence of the fourth paragraph on the reverse hereof, or (ii) is
imposed as a result of presentation of such Bearer Security or coupon for
payment more than 15 days after the date on which such payment became due and
payable or on which payment thereof was duly provided for, whichever occurred
later), will not be less than the amount provided in such Bearer Security or
coupon to be then due and payable. If the Company elects to pay additional
interest
23
<PAGE>
pursuant to this paragraph, the Company shall have the right to redeem the
Securities at any time as a whole at a Redemption Price equal to the
principal amount thereof, together with accrued interest to the date fixed
for redemption, subject to the provisions of the last two sentences of the
fourth paragraph on the reverse hereof. If the Company elects to pay
additional interest pursuant to this paragraph and the condition specified in
the first sentence of this paragraph should no longer be satisfied, then the
Company shall redeem the Securities as a whole at a Redemption Price equal to
the principal amount thereof, together with accrued interest to the date
fixed for redemption, subject to the provisions of the last two sentences of
the fourth paragraph on the reverse hereof. Any redemption payments made by
the Company pursuant to the two immediately preceding sentences shall be
subject to the continuing obligation of the Company to pay additional
interest pursuant to this paragraph.
Except as specifically provided herein and in the Indenture, the Company
shall not be required to make any payment with respect to any tax, assessment or
other governmental charge imposed upon or as a result of payments on the
Securities or coupons by any government or any political subdivision or taxing
authority thereof or therein.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
[IF BEARER SECURITY:
Unless the certificate of authentication hereon has been executed by the
Trustee by the manual signature of one of its authorized signatories, neither
this Security, nor any coupon appertaining hereto, shall be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly executed
under its corporate seal and coupons bearing the facsimile signature of its
Chief Financial Officer or Treasurer to be annexed hereto.
Dated as of May 21, 1987]
[IF REGISTERED SECURITY:
24
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by the manual signature of one of its
authorized signatories, this Security shall not be entitled to any benefit under
the Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
Dated:__________________]
CETUS CORPORATION
By ___________________________
Attest:
__________________________
Secretary
[Form of Reverse]
This Security is one of a duly authorized issue of Securities of the
Company designated as its 5 1/4 per cent. Convertible Subordinated Debentures
due 2002 (herein called the "Securities"), limited (except as otherwise provided
in the Indenture) in aggregate principal amount to U.S. $100,000,000, issued and
to be issued under an Indenture, dated as of May 21, 1987 (herein called the
"Indenture"), between the Company and BANKERS TRUST COMPANY, as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, the holders of
Senior Debt and the Holders of the Securities and any coupons appertaining
thereto and of the terms upon which the Securities are, and are to be,
authenticated and delivered. The Securities are issuable as Bearer Securities,
with interest coupons attached, in the denomination of U.S. $5,000 each and as
Registered Securities, without coupons, in denominations of U.S. $5,000 and
integral multiples thereof. As provided in
25
<PAGE>
the Indenture and subject to certain limitations therein set forth, [IF
BEARER SECURITY - Bearer Securities and] Registered Securities are exchangeable
for a like aggregate principal amount of Registered Securities of any authorized
denominations as requested by the Holder surrendering the same upon surrender of
the Security or Securities to be exchanged, [IF BEARER SECURITY - with all
unmatured coupons and all matured coupons in default thereto appertaining,
except as provided below,] at the office or agency of the Company in the Borough
of Manhattan, The City of New York or, subject to any laws or regulations
applicable thereto and to the right of the Company to terminate the appointment
of any such Transfer Agent, at the main offices of Banque Internationale a
Luxembourg S.A. in Luxembourg, or at such other offices or agencies as the
Company may designate. [IF BEARER SECURITY - Bearer Securities surrendered in
exchange for Registered Securities between a Regular Record Date and the
relevant Interest Payment Date will not be required to be surrendered with the
coupon relating to such Interest Payment Date.] Registered Securities, including
Registered Securities received in exchange for Bearer Securities, may not be
surrendered in exchange for Bearer Securities.
The Securities may be redeemed, at the option of the Company, as a whole or
in part at any time after the expiration of 90 days following the Exchange Date,
upon notice given in the manner provided below, at a Redemption Price (expressed
as a percentage of the principal amount of the Securities to be redeemed) set
forth below, if redeemed during the 12-month period beginning May 21 of the
years indicated;
<TABLE>
<S> <C> <C> <C>
1987 ......... 106 per cent. 1990 ......... 103 per cent.
1988 ......... 105 per cent. 1991 ......... 102 per cent.
1989 ......... 104 per cent. 1992 ......... 101 per cent.
</TABLE>
and at their principal amount if redeemed thereafter, in each case together
with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that interest
installments on Bearer Securities the Stated Maturity of which installment is on
or prior to such Redemption Date will be payable only upon presentation and
surrender of coupons for such interest (at an office or agency outside the
United States except as otherwise provided herein), and PROVIDED, FURTHER, that
interest installments on Registered Securities whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business
26
<PAGE>
on the relevant Regular Record Date referred to on the face hereof, all as
provided in the Indenture. Notwithstanding the foregoing, the Securities may not
be so redeemed prior to May 21, 1990, unless the Closing Market Price Per Share
(as defined in the Indenture) of the Common Stock has been at least 130 per
cent. of the Conversion Price for any 25 trading days out of the 35 consecutive
trading days (being days on which there was such a price) prior to the initial
publication of the notice of such redemption.
The Securities may also be redeemed at the option of the Company as a whole
at any time, on not less than 30 nor more than 60 days' notice, at a Redemption
Price equal to the principal amount thereof, together with accrued interest to
the date fixed for redemption, if the Company determines that it has or will
become obligated to pay additional interest on the Securities pursuant to the
second paragraph on the face of the Securities on the next succeeding Interest
Payment Date as a result of any change in, or amendment to, the laws (or any
regulations or rulings promulgated thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or any change in
official position regarding the application or interpretation of such laws,
regulations or rulings, which change or amendment occurs on or after May 5,
1987. Before publication of any notice of redemption pursuant to this
paragraph, the Company shall deliver to the Trustee and the Principal Paying
Agent (i) a certificate stating that the Company is entitled to redeem and
setting forth a statement of facts showing that the conditions precedent to the
right of the Company to redeem have occurred, and (ii) an opinion of independent
counsel satisfactory to the Trustee to such effect based on such statement of
facts.
If the Company shall determine that any payment made outside the United
States by the Company or any of its Paying Agents in respect of any Bearer
Security or coupon would, under any present or future laws or regulations of the
United States (or any political subdivision or taxing authority thereof or
therein), be subject to any certification, documentation, information or other
reporting requirement of any kind, the effect of which requirement is the
disclosure to the Company, any Paying Agent or any governmental authority of the
nationality, residence or identity of a beneficial owner of such Bearer Security
or coupon that is a United States Alien (other than a requirement (a) that
would not be applicable to a payment made by the Company or any one of its
Paying Agents (i) directly to the
27
<PAGE>
beneficial owner or (ii) to a custodian, nominee or other agent of the
beneficial owner or (b) that can be satisfied if such custodian, nominee or
other agent certifies that the beneficial owner is a United States Alien,
provided that in any case referred to in clause (a)(ii) or (b), payment by
the custodian, nominee or agent to the beneficial owner is not otherwise
subject to any such requirement), the Company shall elect either (x) to
redeem the Securities, as a whole, at a Redemption Price equal to the
principal amount thereof, together with accrued interest to the date fixed
for redemption, or (y) if the conditions of the fourth paragraph on the face
hereof are satisfied, to pay the additional interest specified in such
paragraph. The Company shall make such determination as soon as practicable
and publish prompt notice thereof (the "Determination Notice"), stating the
effective date of such certification, documentation, information or reporting
requirement, whether the Company elects to redeem the Securities or to pay
the additional interest specified in the fourth paragraph on the face hereof,
and (if applicable) the last date by which the redemption of the Securities
must take place, as provided in the next succeeding sentence. If the
Securities are to be redeemed pursuant to this paragraph, the redemption
shall take place on such date, not later than one year after the publication
of the Determination Notice, as the Company shall specify by notice to the
Trustee and the Principal Paying Agent given at least 60 days before the date
fixed for redemption. Notice of such redemption shall be given to the Holders
of the Securities not more than 60 nor less than 30 days prior to the date
fixed for redemption. Notwithstanding the foregoing, the Company shall not
redeem the Securities if the Company shall subsequently determine, not less
than 30 days prior to the date fixed for redemption, that subsequent payments
on the Bearer Securities and coupons would not be subject to any such
certification, documentation, information or other reporting requirement, in
which case the Company shall publish prompt notice of such subsequent
determination and any earlier redemption notice shall be revoked and of
no further effect.
Notice of intention to redeem Securities will be given by the Company to
the Holders of the Securities by publication in Authorized Newspapers in London
and, so long as the Securities are listed on the Luxembourg Stock Exchange and
such Exchange so requires, in Luxembourg or, if not practicable in London or
Luxembourg, elsewhere in Western Europe, and by mail to Holders of Registered
Securities. In the case of a redemption in whole, notice will be given once not
more than 60 nor less than 30 days
28
<PAGE>
prior to the date fixed for redemption. In the case of a partial redemption,
notice will be given twice, the first such notice to be given not more than
75 nor less than 60 days prior to the date fixed for redemption, and the
second such notice at least 20 days thereafter but not less than 30 days
prior to the date fixed for redemption.
In the event of a redemption in part, the Company shall not be required (i)
to register the transfer of or exchange Registered Securities or to exchange
Bearer Securities for Registered Securities for a period of 15 days immediately
preceding the date notice is given identifying the serial numbers of the
Securities called for such redemption; (ii) to register the transfer of or
exchange any Registered Security, or portion thereof, called for redemption; or
(iii) to exchange any Bearer Security called for redemption, PROVIDED, HOWEVER,
that a Bearer Security called for redemption may be exchanged for a Registered
Security which is simultaneously surrendered to the Security Registrar or
Transfer Agent making such exchange with written instruction for payment
consistent with the provisions of the Indenture.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at his option, at any time on or after the
opening of business on the Exchange Date and on or before the close of business
on May 21, 2002, or in case this Security [IF REGISTERED SECURITY - or a portion
hereof] is called for redemption, then in respect of this Security [IF
REGISTERED SECURITY - or such portion hereof] until and including, but (unless
the Company defaults in making the payment due upon redemption) not after, the
close of business on the date five business days preceding the Redemption Date,
to convert this security [IF REGISTERED SECURITY - (or any portion of the
principal amount hereof which is U.S. $5,000 or an integral multiple thereof)],
at the principal amount hereof [IF REGISTERED SECURITY - or of such portion],
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100 of a share) of Common Stock of the Company at a Conversion
Price equal to U.S. $37.00 per share of Common Stock (or at the current adjusted
Conversion Price if an adjustment has been made as provided in the Indenture) by
surrender of this Security together with [IF BEARER SECURITY - all unmatured
coupons and any matured coupons in default appertaining hereto] [IF
REGISTERED SECURITY - (if so required by the Company or the Security Registrar)
instruments of transfer in form satisfactory to the Company and the Security
Registrar,
29
<PAGE>
duly executed by the registered Holder or by his duly authorized attorney
and, in case such surrender shall be made during the period from the
close of business on any Regular Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date (unless
this Security or the portion thereof being converted has been called for
redemption on a Redemption Date within such period), also accompanied by
payment in funds reasonably acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the principal amount of
the Security then being converted (or, if such Registered Security was issued
in exchange for a Bearer Security after the close of business on such Regular
Record Date, by surrender of one or more coupons relating to such Interest
Payment Date or by both payment in such funds and surrender of such coupon or
coupons, in either case, in an amount equal to the interest payable on such
Interest Payment Date on the principal amount of the Security then being
converted),] and the conversion notice hereon duly executed [IF REGISTERED
SECURITY - (a) at the Principal Office in the Borough of Manhattan, the City
of New York of the Principal Paying Agent, or at such other office or agency
of the Company as may be designated by it for such purpose in the Borough of
Manhattan, The City of New York, or (b)] subject to any laws or regulations
applicable thereto and subject to the right of the Company to terminate the
appointment of any such Conversion Agent, [IF BEARER SECURITY - only] at the
main offices of Morgan Guaranty Trust Company of New York in Brussels or
Banque Internationale a Luxembourg S.A. in Luxembourg, or at such other
offices or agencies [IF BEARER SECURITY - outside the United States] as the
Company may designate. [IF BEARER SECURITY - Notwithstanding the foregoing,
this Security may be surrendered for conversion at the Principal Office in
the Borough of Manhattan, The City of New York of the Principal Paying Agent
if conversion at all Conversion Agents outside the United States is illegal
or is effectively precluded because of the imposition of exchange controls
or other similar restrictions.] [IF REGISTERED SECURITY - Subject to the
aforesaid requirement for payment and, in the case of a conversion after the
Regular Record Date next preceding any Interest Payment Date and on or before
such Interest Payment Date, to the right of the Holder of this Security (or
any Predecessor Security) of record at such Regular Record Date to receive an
installment of interest (with certain exceptions provided in the Indenture),
and subject] [IF BEARER SECURITY - Subject] to the provisions of the first
sentence of the second paragraph on the reverse of this Security, no payment
or adjustment is to be
30
<PAGE>
made on conversion for interest accrued hereon or for dividends on the Common
Stock delivered on conversion. No fractions of shares or scrip representing
fractions of shares will be issued or delivered on conversion, but instead of
any fractional interest the Company shall pay a cash adjustment as provided
in the Indenture.
The Conversion Price is subject to adjustment as provided in the
Indenture in certain events, including the payment of dividends or the making
of a distribution on the capital stock of the Company in shares of Common
Stock; subdivisions, combinations and reclassifications of the Common Stock; the
making of a distribution on the Common Stock in shares of capital stock other
than Common Stock; certain consolidations, mergers and sales of the property
of the Company; the issuance to all holders of Common Stock of certain rights
or warrants entitling them to subscribe for Common Stock at a price per share
below the then-current market price; and the distribution to all holders of
Common Stock of assets (other than cash) or certain rights or warrants to
purchase securities of the Company. No adjustment in the Conversion Price
will be required unless such adjustment would require a change of at least
one per cent. in the Conversion Price then in effect; provided, however, that
any adjustment that would otherwise be required to be made will be carried
forward and taken into account in determining any subsequent adjustment. The
Conversion Price will not be adjusted in the case of transactions in which
the Holders of Securities are entitled to participate or which effectuate a
change in the par value or lack thereof of the Common Stock. In addition, in
the case of certain of such rights and warrants, the Company may elect not to
adjust the Conversion Price but instead to provide that Holders of Securities
would receive the rights or warrants, if and when they convert their
Securities into Common Stock, to the extent such rights or warrants would
be issued with other shares of Common Stock issued at the time of conversion.
The Company is entitled from time to time to reduce the Conversion Price by
any amount for a minimum period of 20 days, by at least 15 days prior notice
to the Holders of Securities. The Company may also reduce the Conversion
Price in order to avoid taxation of its stockholders as a result of an
adjustment of, or failure to adjust, the Conversion Price.
In addition, the Indenture provides that in case of certain consolidations
or mergers to which the Company is a party, the transfer of substantially all
of the assets of the Company as an entirety, or certain reclassifications
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<PAGE>
or changes of the shares of Common Stock, the Indenture shall be amended,
without the consent of any Holders of Securities, so that this Security, if
then outstanding, will be convertible thereafter, during the period this
Security shall be convertible as specified above, in lieu of conversion into
the shares of Common Stock deliverable on conversion immediately prior to such
event, only into the kind and amount of securities and/or cash and/or other
property receivable upon such consolidation, merger, transfer,
reclassification or change by a holder of the number of shares of Common
Stock into which such Security might have been converted immediately prior to
such consolidation, merger, transfer, reclassification or change, assuming,
if such consolidation, merger, transfer, reclassification or change is prior
to the Exchange Date, that this Security were convertible at the time of such
event at the initial Conversion Price specified above as adjusted from May 5,
1987 to such time pursuant to the Indenture.
[IF REGISTERED SECURITY - In the event of redemption or conversion of this
Security in part only, a new Security or Securities for the unredeemed or
unconverted portion hereof will be issued in the name of the Holder hereof upon
the cancellation hereof.]
The payment of the principal of, premium (if any) and interest on this
Security is subordinated in right of payment, to the extent set forth in the
Indenture, to the prior payment in full of all Senior Debt. Each Holder of this
Security [IF BEARER SECURITY - or any coupon appertaining to this Security], by
accepting the same, (a) agrees to and shall be bound by such provisions of the
Indenture, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination of
this Security [IF BEARER SECURITY - and any such coupon] as provided in the
Indenture and (c) appoints the Trustee his attorney-in-fact for any and all such
purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities and coupons under
32
<PAGE>
the Indenture at any time by the Company and the Trustee with the consent of
the Holders of a majority in aggregate principal amount of the Securities at
the time Outstanding (or such lesser amount as shall have acted at a meeting
pursuant to the provisions of the Indenture). The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities and coupons, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security [IF BEARER SECURITY - and any coupon
appertaining hereto] and of any Security issued [IF REGISTERED SECURITY - upon
registration of transfer hereof or] in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security
or such other Security.
Subject to Article Thirteen of the Indenture, no reference herein to the
Indenture and no provision of this Security or of the Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of (and premium, if any) and interest (including additional
interest, as described on the face hereof) on this Security at the times, places
and rate, and in the coin or currency, herein prescribed or to convert this
Security as provided in the Indenture.
Title to Bearer Securities and coupons shall pass by delivery. As provided
in the Indenture and subject to certain limitations therein set forth, the
transfer of Registered Securities is registrable on the Security Register upon
surrender of a Registered Security for registration of transfer at the office of
Morgan Guaranty Trust Company of New York, as Security Registrar, in the Borough
of Manhattan, The City of New York or, subject to any laws or regulations
applicable thereto and to the right of the Company to terminate the appointment
of any such Transfer Agent, at the main offices of Banque Internationale a
Luxembourg S.A. in Luxembourg, or at such other offices or agencies as the
Company may designate, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar or
any such Transfer Agent, as the case may be, duly executed by, the Holder
thereof or his attorney duly authorized in writing, and thereupon one or more
new Registered Securities, of authorized denominations and for the same
33
<PAGE>
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the bearer of a Bearer Security and any coupon appertaining thereto and,
prior to due presentment for registration of transfer, the Person in whose name
a Registered Security is registered as the owner thereof for all purposes,
whether or not the Security or coupon be overdue, and neither the Company, the
Trustee or any such agent shall be affected by notice to the contrary.
The Indenture, the Securities and any coupons appertaining thereto shall be
governed by and construed in accordance with the law of the State of New York.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 203. FORM OF TEMPORARY GLOBAL SECURITY.
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933. NEITHER THIS SECURITY NOR ANY PORTION HEREOF MAY BE OFFERED OR
SOLD DIRECTLY OR INDIRECTLY IN THE UNITED STATES OF AMERICA (INCLUDING THE
STATES AND THE DISTRICT OF COLUMBIA), ITS TERRITORIES, ITS POSSESSIONS AND
OTHER AREAS SUBJECT TO ITS JURISDICTION ("UNITED STATES") OR TO ANY CITIZEN
OR RESIDENT OF THE UNITED STATES, ANY CORPORATION, PARTNERSHIP OR OTHER
ENTITY CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE UNITED STATES OR ANY
STATE THEREOF OR TO ANY ESTATE OR TRUST THE INCOME OF WHICH IS SUBJECT TO
UNITED STATES FEDERAL INCOME TAXATION REGARDLESS OF ITS SOURCE (ALL OF THE
FOREGOING BEING "U.S. PERSONS"), EXCEPT IN COMPLIANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR AN EXEMPTION THEREFROM.
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
34
<PAGE>
CETUS CORPORATION
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
TEMPORARY GLOBAL SECURITY
CETUS CORPORATION, a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to bearer upon presentation and surrender of
this Global Security the principal sum of U.S. $100,000,000 on May 21, 2002 and
to pay interest thereon, from the date hereof, annually in arrears on May 21 in
each year, commencing May 21, 1988, at the rate of 5 1/4 per cent. per annum,
until the principal hereof is paid or made available for payment; PROVIDED,
HOWEVER, that interest on this Global Security shall be payable only after the
issuance of the definitive Securities for which this Global Security is
exchangeable and, in the case of definitive Securities in bearer form, only upon
presentation and surrender (at an office or agency outside the United States,
except as otherwise provided in the Indenture referred to below) of the interest
coupons thereto attached as they severally mature.
This Global Security is issued in respect of an issue of Securities of the
Company designated as specified in the title hereof, issued and to be issued
under the Indenture, dated as of May 21, 1987 (herein called the "Indenture"),
between the Company and Bankers Trust Company, as Trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture). This
Global Security is a temporary security and is exchangeable in whole or from
time to time in part without charge upon request of the Holder hereof for
definitive Securities in bearer form, with interest coupons attached, or in
registered form, without coupons, of authorized denominations, (a) not earlier
than 90 days after the date on which the distribution of the Securities has been
completed as Swiss Bank Corporation International Limited shall have advised the
Trustee in writing and (b) as promptly as practicable following presentation of
certification, in the form set forth in Exhibit A to the Indenture, that the
beneficial owner or owners of this Global Security (or, if such exchange is only
for a part of this Global Security, of such part) (i) are not U.S. Persons or
(ii) are United States Bank Branches that have acquired the Securities in
compliance with the applicable requirements of Section 304
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<PAGE>
of the Indenture. Notwithstanding the foregoing, this Global Security is
exchangeable at any time for Registered Securities that have been sold to United
States Institutional Investors upon compliance with the applicable requirements
of Section 304 of the Indenture. Definitive Securities in bearer form to be
delivered in exchange for any part of this Global Security shall be delivered
only outside the United States. Upon any exchange of a part of this Global
Security for definitive Securities, the portion of the principal amount hereof
so exchanged shall be endorsed by the Trustee on the Schedule hereto, and the
principal amount hereof shall be reduced for all purposes by the amount so
exchanged.
Until exchanged in full for definitive Securities, this Global Security
shall in all respects be entitled to the same benefits under, and subject to the
same terms and conditions of, the Indenture as definitive Securities
authenticated and delivered thereunder, except that neither the Holder hereof
nor the beneficial owners of this Global Security shall be entitled to receive
payment of interest hereon or to convert this Global Security into Common Stock
of the Company or any other security, cash or other property.
This Global Security shall be governed by and construed in accordance with
the law of the State of New York.
All terms used in this Global Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
Unless the certificate of authentication hereon has been executed by the
Trustee by the manual or facsimile signature of one of its authorized officers,
this Global Security shall not be entitled to any benefit under the Indenture or
be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Global Security to be duly
executed.
Dated as of May 21, 1987
CETUS CORPORATION
By_______________________________
[Title]
36
<PAGE>
SCHEDULE OF EXCHANGES
<TABLE>
<CAPTION>
Remaining
principal
Principal amount
amount following
Date exchanged for such
Made definitive Securities exchange Notation made
---- --------------------- ---------- -------------
<S> <C> <C> <C>
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
---- --------------------- ---------- -------------
</TABLE>
SECTION 204. FORM OF COUPON.
[Form of Face]
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
No.
CETUS CORPORATION U.S. $
Due________
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
Unless the Security to which this coupon appertains shall have been called
for previous redemption and payment thereof duly provided for or converted, on
the date set forth hereon, CETUS CORPORATION (herein called the
37
<PAGE>
"Company") will pay to bearer, upon surrender hereof, the amount shown
hereon (together with any additional interest in respect thereof which the
Company may be required to pay according to the terms of said Security and the
Indenture referred to therein) only at the Paying Agents set out on the reverse
hereof or at such other places (which, except as otherwise provided in the
Security to which this coupon appertains, shall be located outside the United
States of America (including the States and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction
("United States")) as the Company may determine from time to time, by United
States dollar check drawn on a bank in The City of New York, or by transfer to a
United States dollar account maintained by the payee with a bank located outside
the United States. No payment hereon will be made by mail to an address in the
United States or by transfer to an account in the United States.
CETUS CORPORATION
By____________________________
[Title]
38
<PAGE>
SECTION 205. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
____________________________
as TRUSTEE
By_____________________________
AUTHORIZED SIGNATORY
SECTION 206. FORM OF CONVERSION NOTICE.
CONVERSION NOTICE
The undersigned Holder of this Security hereby irrevocably
exercises the option to convert this Security [if Registered Security -- or
portion hereof (which is U.S. $5,000 or an integral multiple thereof) below
designated,] into shares of Common Stock in accordance with the terms of the
Indenture referred to in this Security [if Registered Security -- delivers
herewith the amount of interest payable on the next Interest Payment Date if
this conversion is made between the Regular Record Date for such Interest
Payment Date and such Interest Payment Date,] [if Bearer Security -- delivers
herewith the coupons appertaining to such Security,] and directs that such
shares, together with a check in payment for any fractional share [if Registered
Security -- and any Securities representing any unconverted principal amount
hereof,] be delivered to and be registered in the name of the undersigned unless
a different name has been indicated below. If shares [if Registered Security --
or Securities] are to be registered in the name of a Person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto.
Dated:____________________
_____________________________
SIGNATURE
40
<PAGE>
If Bearer Security, please [If Registered Security --
print name and address of IF ONLY A PORTION OF THE
Holder: SECURITIES IS TO BE CONVERTED,
PLEASE INDICATE:
1. PRINCIPAL AMOUNT TO BE
_________________________ CONVERTED (IN AN INTEGRAL
MULTIPLE OF U.S. $5,000
_________________________ IF LESS THAN ALL):
U.S. $
_________________________
2. AMOUNT AND DENOMINATION
IF SHARES OR SECURITIES OF SECURITIES REPRESENTING
ARE TO BE REGISTERED IN THE UNCONVERTED PRINCIPAL AMOUNT
NAME OF A PERSON OTHER THAN TO BE ISSUED:
THE HOLDER, PLEASE PRINT
SUCH PERSON'S NAME AND ADDRESS: AMOUNT: U.S. $
_________________________ DENOMINATIONS:
_________________________ U.S. $
(U.S. 5,000 OR AN INTEGRAL
_________________________ MULTIPLE THEREOF)]
41
<PAGE>
ARTICLE THREE
The Securities
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is limited to $100,000,000 except for
Securities authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 805, 1109 or 1202.
The Securities shall be known and designated as the "5 1/4 per cent.
Convertible Subordinated Debentures due 2002" of the Company. Their Stated
Maturity shall be May 21, 2002, and they shall bear interest at the rate of
5 1/4 per cent. per annum from May 21, 1987 payable annually in arrears on May
21 in each year, commencing May 21, 1988, until the principal thereof is paid
or made available for payment.
The principal of (and premium, if any) and interest on the Securities
shall be payable as provided in the forms of Securities set forth in Section
202 (any city in which any Paying Agent is located being herein called a
"Place of Payment").
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be convertible as provided in Article Twelve (any
city in which any Conversion Agent is located being herein called a "Place of
Conversion").
The Securities shall be subordinated in right of payment to Senior Debt
as provided in Article Thirteen.
SECTION 302. DENOMINATIONS.
The definitive Securities shall be issuable in bearer form, with interest
coupons attached, in the denomination of U.S. $5,000 each and in fully
registered form, without coupons, in the denominations of U.S. $5,000 and
integral multiples thereof.
42
<PAGE>
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The definitive Securities shall be executed on behalf of the Company by
its Chairman of the Board, its President or one of its Vice Presidents, under
its corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the
definitive Securities may be manual or facsimile. Coupons shall bear the
facsimile signature of the Chief Financial Officer, the Treasurer or any
Assistant Treasurer of the Company. The temporary Global Security referred to
in Section 304 shall be manually executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents or by a
duly appointed attorney-in-fact of the Company, and need not bear the
corporate seal of the Company or any attestation by its Secretary or an
Assistant Secretary.
Securities and coupons bearing the manual or facsimile signature of any
Person who was at any time a proper officer of the Company shall bind the
Company, notwithstanding that such Person has ceased to hold such office
prior to the authentication and delivery of such Securities or did not hold
such office at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Bearer Security and the Global Security shall be dated as of the
date of this Indenture. Each Registered Security shall be dated the date of
its authentication.
No Security or coupon shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder. Except as permitted by Section 304, 306 or 307, the Trustee shall
not
43
<PAGE>
authenticate and deliver any Bearer Security unless all appurtenant coupons
for interest then matured have been detached and cancelled.
SECTION 304. TEMPORARY GLOBAL SECURITY; EXCHANGE OF TEMPORARY GLOBAL
SECURITY FOR DEFINITIVE SECURITIES.
The Securities shall be issued initially in the form of one temporary
Global Security, which temporary Global Security shall be deposited on behalf
of the purchasers of the Securities with a common depositary outside the
United States (the "Common Depositary"), for credit to their respective
accounts (or to such other accounts as they may direct) at Morgan Guaranty
Trust Company of New York, Brussels Office, as operator of the Euro-clear
System ("Euro-clear"), or CEDEL S.A. ("CEDEL").
Without unnecessary delay but in any event prior to the Exchange Date,
the Company shall deliver to the Trustee definitive Securities in aggregate
principal amount equal to the principal amount of the Global Security,
executed by the Company. Such definitive Securities shall be in the form of
Bearer Securities or Registered Securities, or any combination thereof, as
may be specified by the Trustee. On and after the Exchange Date, except as
provided below, the interest of a beneficial owner of Securities in the
Global Security shall be exchanged for definitive Securities when the account
holder of Euro-clear or CEDEL that holds such interest on behalf of such
beneficial owner instructs Euro-clear or CEDEL, as the case may be, to
request such exchange on his behalf and delivers to Euro-clear or CEDEL, as
the case may be, a certificate substantially in the form set forth in Exhibit
B to this Indenture, copies of which certificate shall be available from the
offices of Euro-clear and CEDEL, the Trustee and each other paying agency of
the Company. If the beneficial owner of any Securities is a United States
Bank Branch, then that beneficial owner must deliver to the applicable
account holder a certificate substantially in the form of Exhibit C to this
Indenture prior to the submission by the account holder of a certificate
substantially in the form of Exhibit B to this Indenture in respect of those
Securities. Notwithstanding the foregoing, the interest of a United States
Institutional Investor in the Global Security shall be exchanged for
definitive Securities when SBCI instructs Euro-clear or CEDEL, as the case
may be, to request such exchange on its behalf and delivers to Euro-clear or
CEDEL, as the case may be, a certificate
44
<PAGE>
substantially in the form set forth in Exhibit D to this Indenture.
Securities issued to United States Institutional Investors shall be
Registered Securities, shall bear the legend appearing on the face of the
form of definitive Registered Securities set forth in Section 202 and may be
in temporary form if the Company so elects and such exchange takes place
prior to the Exchange Date. Any exchange pursuant to this Section shall be
made free of charge to the beneficial owners of the Global Security, except
that a person receiving definitive Securities must bear the cost of
insurance, postage, transportation and the like in the event that such person
does not take delivery of such definitive Securities in person at the offices
of Euro-clear or CEDEL.
Until so exchanged in full, the Global Security shall be surrendered by
the Common Depositary to the Trustee, as the Company's agent, for purposes of
the exchange of Securities described below. Following such surrender, upon
the request of Euro-clear or CEDEL, acting on behalf of beneficial owners of
Securities, the Trustee shall authenticate and deliver (outside the United
States, in the case of Bearer Securities) to Euro-clear or CEDEL, as the case
may be, for the account of such owners, definitive Securities in the form of
Bearer Securities or Registered Securities, or any combination thereof, as
shall be specified by such owners, in exchange for the aggregate principal
amount of the Global Security beneficially owned by such owners, but only
upon delivery by Euro-clear or CEDEL, acting on behalf of such owners, to the
Trustee at its principal office in London of a certificate or certificates
substantially in the form set forth in Exhibit A hereto. The delivery to the
Trustee by Euro-clear or CEDEL of such a certificate may be relied upon by
the Company and the Trustee as conclusive evidence that a related certificate
or certificates has or have been delivered to Euro-clear or CEDEL, as the
case may be, as contemplated by the terms of the next preceding paragraph.
Upon any such exchange of a portion of the Global Security for definitive
Securities, the Global Security shall be endorsed to reflect the reduction of
the principal amount evidenced thereby. Until so exchanged in full, the
Global Security shall in all respects be entitled to the same benefits under,
and subject to the same terms and conditions of, this Indenture as definitive
Securities authenticated and delivered hereunder, except that none of
Euro-clear, CEDEL or the beneficial owners of the Global Security shall be
entitled to receive payment of interest
45
<PAGE>
thereon or to convert the Global Security into Common Stock of the Company or
any other security, cash or other property.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Principal Office of the
Principal Paying Agent a register (the register maintained in such office and
in any other office or agency designated pursuant to Section 1002 as a
Transfer Agent being herein sometimes collectively referred to as the
"Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Registered
Securities and of transfers of Registered Securities. Pursuant to the Paying
Agency Agreement, the Company has appointed the Principal Paying Agent and
each Transfer Agent as "Security Registrars" for the purpose of registering
Registered Securities and transfers of Registered Securities as herein
provided.
Subject to the provisions of this Section 305, upon surrender for
registration of transfer of any Registered Security at an office or agency of
the Company designated pursuant to Section 1002 for such purpose, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Registered
Securities of any authorized denominations and of a like aggregate principal
amount.
Registration of transfer of Registered Securities containing the first
legend set forth on the form of definitive Registered Security in Section 202
shall be effected only if:
(i) (A) the sale is to an Eligible Purchaser (as defined in
Exhibit E to this Indenture) of at least U.S. $500,000 principal amount of
Registered Securities and (B) a letter to substantially the same effect as
paragraphs (i), (ii)(b), (iii), (iv) and (v) of the form of letter set
forth in Exhibit E to this Indenture, executed by the purchaser is
delivered to SBCI and the Security Registrar; or
(ii) the Registered Securities are transferred pursuant to Rule
144 under the Securities Act of 1933 by the transferor after it has held
them for more than three years; or
46
<PAGE>
(iii) the Registered Securities are transferred in any other
transaction that does not require registration under the Securities Act of
1933 and an opinion of counsel in form and substance satisfactory to the
Company is furnished to such effect.
Registered Securities issued upon registration of transfer of, or
Registered Securities issued in exchange for, Registered Securities bearing
the first legend set forth on the form of definitive Registered Security in
Section 202 shall also bear such legend unless the Company determines that
such transfer is pursuant to Rule 144 under the Securities Act of 1933 or the
Company receives an opinion of counsel in form and substance satisfactory to
it to the effect that such legend may be removed.
The shares of Common Stock issuable on conversion of Registered
Securities bearing the first legend set forth on the form of definitive
Registered Security in Section 202 shall be subject to the provisions of the
next preceding two paragraphs and the Company shall take all actions
necessary to comply with such provisions.
At the option of the Holder, Bearer Securities may be exchanged for
Registered Securities, of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Bearer Securities to be
exchanged at an office or agency of the Company designated pursuant to
Section 1002 for such purpose, with all unmatured coupons and all matured
coupons in default appertaining thereto. If the Holder of a Bearer Security
is unable to produce any such unmatured coupon or coupons or matured coupon
or coupons in default, such exchange may be effected if the Bearer Securities
are accompanied by payment in funds reasonably acceptable to the Company in
an amount equal to the face amount of such missing coupon or coupons or the
surrender of such missing coupon or coupons may be waived by the Company and
the Trustee or Principal Paying Agent, if there be furnished to them such
security or indemnity as they may require to save each of them and any agent
of each of them harmless. If thereafter the Holder of such Security shall
surrender to any Paying Agent any such missing coupon in respect of
which such a payment shall have been made, such Holder shall be entitled to
receive the amount of such payment; PROVIDED, HOWEVER, that, except as
otherwise provided in the forms of Security set forth in Section 202,
interest represented by coupons shall be payable only upon presentation and
surrender of those coupons at an office or agency outside the United
47
<PAGE>
States. Notwithstanding the foregoing, in case a Bearer Security is
surrendered in exchange for a Registered Security at an office or agency
designated pursuant to Section 1002 after the close of business at such office
or agency on (i) any Regular Record Date and before the opening of business at
such office or agency on the relevant Interest Payment Date, or (ii) any Special
Record Date and before the opening of business at such office or agency on the
related date for payment of Defaulted Interest, such Bearer Security shall be
surrendered without the coupon relating to such Interest Payment Date or
proposed date of payment, as the case may be.
At the option of the Holder, Registered Securities may be exchanged for
other Registered Securities of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged
at an office or agency of the Company designated pursuant to Section 1002 for
such purpose. Whenever any Registered Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Registered Securities which the Holder making the exchange is
entitled to receive. Registered Securities, including Registered Securities
received in exchange for Bearer Securities, may not be surrendered in
exchange for Bearer Securities.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee
or the Principal Paying Agent) be duly endorsed, or be accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities,
other than exchanges pursuant to Section 304, 805, 1109 or 1202 not involving
any transfer.
48
<PAGE>
The Company shall not be required (i) to register the transfer of or
exchange Registered Securities or to exchange Bearer Securities for
Registered Securities for a period of 15 days immediately preceding the date
Securities are selected for redemption by the Principal Paying Agent, or (ii)
to register the transfer of or exchange any Registered Security, or portion
thereof, called for redemption, or (iii) to exchange any Bearer Security
called for redemption, PROVIDED, HOWEVER, that a Bearer Security called for
redemption may be exchanged for a Registered Security which is simultaneously
surrendered to the Security Registrar or Transfer Agent making such exchange
with written instruction for payment consistent with the provisions of this
Indenture.
SECTION 306. MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES AND COUPONS.
If any mutilated Security or a Security with a mutilated coupon
appertaining to it is surrendered to the Principal Paying Agent, the Company
shall execute, and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to the surrendered Security.
If there shall be delivered to the Company and the Trustee or the
Principal Paying Agent (i) evidence to their satisfaction of the destruction,
loss or theft of any Security or coupon, and (ii) such security or indemnity
as may be required by them to save each of them and any agent of either of
them harmless, then, in the absence of notice to the Company or the Trustee
or the Principal Paying Agent that such Security or coupon has been acquired
by a bona fide purchaser, the Company shall execute and upon Company Request
the Trustee shall authenticate and the Company shall cause to have delivered,
in lieu of any such destroyed, lost or stolen Security or in exchange for the
Security to which such coupon appertains (with all appurtenant coupons not
destroyed, lost or stolen), a new Security of like tenor and principal amount
and bearing a number not contemporaneously outstanding, with coupons
corresponding to the coupons, if any, appertaining to such destroyed, lost or
stolen Security or the Security to which such destroyed, lost or stolen
coupon appertains.
In case any such mutilated, destroyed, lost or stolen Security or
coupon has become or is about to become
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due and payable, the Company in its discretion may, instead of issuing a new
Security, pay such Security or coupon; PROVIDED, HOWEVER, that, except as
otherwise provided in the forms of Security set forth in Section 202, the
principal of (and premium, if any) and interest on Bearer Securities shall be
payable only at an office or agency outside the United States and, in the
case of interest (but not in the case of any additional interest payable with
respect to principal and premium, if any, as provided in Section 1004), only
upon presentation and surrender of the coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
Every new Security with its coupons, if any, issued pursuant to this
Section in lieu of any destroyed, lost or stolen Security, or in exchange for
a Security to which a destroyed, lost or stolen coupon appertains, shall
constitute an original additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Security and its coupons, if
any, or the destroyed, lost or stolen coupon shall be at any time enforceable
by anyone, and such new Security and coupons, if any, shall be entitled to
all the benefits of this Indenture equally and proportionately with any and
all other Securities and coupons duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities or coupons.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Registered Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest. In case a Bearer Security is surrendered in exchange for a
Registered Security at an office or agency of the Company designated pursuant
to Section 1002 for the purpose after the close of business (at such office
or agency) on any Regular Record
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Date and before the opening of business (at such office or agency) on the
next succeeding Interest Payment Date, such Bearer Security shall be
surrendered without the coupon relating to such Interest Payment Date and
interest will not be payable on such Interest Payment Date in respect of the
Registered Security issued in exchange for such Bearer Security, but will be
payable only to the Holder of such coupon when due.
Any interest on any Registered Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
Person who was the Holder on the relevant Regular Record Date by virtue of
such Person's having been such Holder, and such Defaulted Interest may be
paid by the Company, at its election in each case, as provided in Clause (1)
or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Registered Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee and Principal Paying Agent in writing of the
amount of Defaulted Interest proposed to be paid on each Registered
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Principal Paying Agent an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Principal Paying Agent for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. The Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Principal Paying Agent of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to
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each Holder of Registered Securities at the address of such Holder as it
appears in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the Persons in whose names the
Registered Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2). In case
a Bearer Security is surrendered in exchange for a Registered Security
at an office or agency of the Company designated pursuant to Section
1002 for the purpose after the close of business (at such office or
agency) on any Special Record Date and before the opening of business
(at such office or agency) on the related proposed date for payment of
Defaulted Interest, such Bearer Security shall be surrendered without
the coupon relating to such proposed date of payment and Defaulted
Interest will not be payable on such proposed date of payment in respect
of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the Holder of such coupon.
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange or quotation system on which the Securities may be
listed or quoted, and upon such notice as may be required by such
exchange or quotation system, if, after notice given by the Company to
the Principal Paying Agent of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Principal Paying Agent.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
In the case of any Registered Security which is converted after
any Regular Record Date and on or prior to the next succeeding Interest Payment
Date (other than any Registered Security whose Maturity is prior to such
Interest Payment Date), interest whose Stated Maturity is on such Interest
Payment Date shall be payable on such Interest
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Payment Date notwithstanding such conversion, and such interest (whether or
not punctually paid or duly provided for) shall be paid to the Person in whose
name that Registered Security (or one or more Predecessor Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Security which is converted, interest whose Stated Maturity is after the
date of conversion of such Security shall not be payable.
SECTION 308. PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the bearer of any Bearer Security or the Global Security and the bearer
of any coupon as the absolute owner of such Security or coupon for the
purpose of receiving payment thereof or on account thereof and for all other
purposes whatsoever, whether or not such Security or coupon be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary. Prior to due presentment of a
Registered Security for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the Person in whose
name such Security is registered as the owner of such Security for the
purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 309. CANCELLATION.
All Securities and coupons surrendered for payment, redemption, conversion,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee or Principal Paying Agent, be delivered to the Trustee or
Principal Paying Agent. All Securities and coupons so delivered shall be
cancelled promptly by the Trustee or Principal Paying Agent. The Company may at
any time deliver to the Trustee or Principal Paying Agent for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled. No Securities shall be authenticated in lieu of or
in exchange for any Securities cancelled as provided in this Section, except as
expressly
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permitted by this Indenture. All cancelled Securities and coupons held by the
Trustee or Principal Paying Agent shall be destroyed and the Trustee or
Principal Paying Agent shall furnish to the Company a certificate with
respect to such destruction, except that the cancelled Global Security and
certificates referred to in Section 304 shall not be destroyed but shall be
delivered to the Company.
SECTION 310. COMPUTATION OF INTEREST.
Interest on the Securities shall be computed on the basis of a
year of twelve 30-day months.
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ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for, and any right to receive additional
interest under the second or third paragraph on the face of the forms of
Securities set forth in Section 202), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered and all
coupons appertaining thereto (other than (i) coupons appertaining to Bearer
Securities surrendered for exchange for Registered Securities and maturing
after such exchange, whose surrender is not required or has been waived as
provided in Section 305, (ii) Securities and coupons which have been
destroyed, lost or stolen and which have been replaced or paid as provided in
Section 306, (iii) coupons appertaining to Securities called for redemption
and maturing after the relevant Redemption Date, whose surrender has been
waived as provided in Section 1107, and (iv) Securities and coupons for whose
payment money has theretofore been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been delivered to the
Trustee or Principal Paying Agent for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee or
Principal Paying Agent for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
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(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee and the Principal Paying Agent for
the giving of notice of redemption by the Principal Paying Agent in the
name, and at the expense, of the Company;
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee or Principal Paying Agent as trust
funds in trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities and coupons not theretofore delivered
to the Trustee or Principal Paying Agent for cancellation, for principal (and
premium, if any) and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee and the Principal Paying
Agent an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 shall survive
and, if money shall have been deposited with the Trustee or the Principal
Paying Agent pursuant to Clause (1)(B) of this Section, the obligations of
the Trustee under Section 402 and the last paragraph of Section 1003 shall
survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee or the Principal Paying Agent pursuant to
Section 401 shall be held in trust and applied by it, in accordance with the
provisions of the Securities, the coupons and this Indenture, to the payment,
through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the
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Trustee or the Principal Paying Agent. All moneys deposited with the Trustee
or the Principal Paying Agent pursuant to Section 401 (and held by it or any
Paying Agent) for the payment of Securities subsequently converted shall be
returned to the Company upon Company Request.
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ARTICLE FIVE
Remedies
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment when due of the principal of (or
premium, if any, on) any Security; or
(2) default in the payment of any installment of interest or any
required payment of additional interest on any Security when it becomes due
and payable, and continuance of such default for a period of 30 days after
the date when due; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with) or the Securities, and (unless
such failure shall not be capable of being remedied) continuance of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25 per cent. in
principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(4) default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or under any mortgage,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by
the Company, whether such indebtedness now exists or shall hereafter be
created, which default shall constitute a failure to pay any portion
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of the principal of such indebtedness when due and payable after the
expiration of any applicable grace period with respect thereto or shall
have resulted in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise have become due
and payable, and the aggregate amount of any and all issues of such
indebtedness exceeds U.S. $5,000,000 without such indebtedness having
been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25 per cent. in
aggregate principal amount of the Outstanding Securities a written
notice specifying such default and requiring the Company to cause such
indebtedness to be discharged or cause such acceleration to be rescinded
or annulled and stating that such notice is a "Notice of Default"
hereunder; or
(5) the entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Company or any of its
Subsidiaries in an involuntary case or proceeding under any applicable
United States Federal or State bankruptcy, insolvency, reorganization or
other similar law or (B) a decree or order adjudging the Company or any
of its Subsidiaries a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any of its Subsidiaries
under any applicable United States Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any of its Subsidiaries or of
any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days; or
(6) the commencement by the Company or any of its Subsidiaries of a
voluntary case or proceeding under any applicable United States Federal
or State bankruptcy, insolvency, reorganization or other similar law or
of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Company or any of its Subsidiaries to
the entry of a decree or order for relief in respect of the Company
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or any of its Subsidiaries in an involuntary case or proceeding under
any applicable United States Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
of its Subsidiaries, or the filing by the Company or any of its
Subsidiaries of a petition or answer or consent seeking reorganization
or relief under any applicable United States Federal or State law, or
the consent by the Company or any of its Subsidiaries to the filing of
such petition or to the appointment of or the taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or any of its Subsidiaries or of any
substantial part of its property, or the making by the Company or any of
its Subsidiaries of an assignment for the benefit of creditors, or the
admission by the Company or any of its Subsidiaries in writing of its
inability to pay its debts generally as they become due, or the taking
of corporate action by the Company or any of its Subsidiaries in
furtherance of any such action.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25 per cent. in principal
amount of the Outstanding Securities may declare the principal of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such
declaration such principal amount shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Outstanding Securities (or 66 2/3 per
cent. in aggregate principal amount of the Securities represented and voting
at a meeting of the Holders duly called in accordance with the provisions of
this Indenture and at which a quorum is present), by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
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(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any Securities
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the
Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel;
and
(2) all Events of Default, other than the nonpayment of the
principal of Securities which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 513.
No such rescission or annulment shall affect any subsequent default or impair
any right consequent thereon.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if
(1) default is made in the payment when due of the principal of (or
premium, if any, on) any Security, or
(2) default is made in the payment of any installment of interest
or any required payment of additional interest on any Security when it
becomes due and payable and such default continues for a period of 30
days after the date when due,
the Company will, upon demand of the Trustee, pay to it, for the benefit of
the Holders of such Securities and coupons, the whole amount then due and
payable on such Securities and coupons for principal (and premium, if any) and
interest and, to the extent that payment of such interest shall be legally
enforceable, interest on any
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overdue principal (and premium, if any) and on any overdue interest, at the
rate borne by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the
same against the Company or any other obligor upon the Securities and collect
the moneys adjudged or decreed to be payable in the manner provided by law
out of the property of the Company or any other obligor upon the Securities,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities and coupons by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal or
interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation,
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expenses, disbursements and advances of the Trustee, its agents and
counsel) and the Holders of Securities and coupons allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Securities and coupons to make such payments to the Trustee and,
in the event that the Trustee shall consent to the making of such payments
directly to the Holders of Securities and coupons, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and any other amounts due the
Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept, or adopt on behalf of any Holder of a
Security or coupon, any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the coupons or the rights of any
Holder thereof or to authorize the Trustee to vote in respect of the claim of
any Holder of a Security or coupon in any such proceeding.
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES OR COUPONS.
All rights of action and claims under this Indenture or the Securities
or coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or coupons or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities and coupons in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Subject to Article Thirteen and the provisions of the Securities
restricting payments on the Bearer Securities and the coupons in the United
States, any money collected
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by the Trustee pursuant to this Article shall be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Securities or coupons, or both, as the
case may be, and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities and
coupons in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities and coupons
for principal (and premium, if any) and interest, respectively.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Security or coupon shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless:
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(5) no direction inconsistent with such written request has been
given to the Trustee during such
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60-day period by the Holders of a majority in principal amount of the
Outstanding Securities (or such lesser amount as shall have acted at a
meeting pursuant to the provisions of this Indenture, PROVIDED that such
lesser amount is more than the principal amount of the Outstanding
Securities whose Holders shall have made such written request);
it being understood and intended that no one or more of such Holders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture or such Holder's Security to affect, disturb or
prejudice the rights of any other of such Holders, or to obtain or seek to
obtain priority or preference over any other of such Holders or to enforce
any right under this Indenture or such Holder's Security, except in the
manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST AND TO CONVERT.
Notwithstanding any other provision in this Indenture, but subject to
Article Thirteen, the Holder of any Security or coupon shall have the right,
which is absolute and unconditional, to receive payment of the principal of
(and premium, if any) and (subject to Section 307) interest on such Security
or payment of such coupon at the times, places and rate, and in the coin or
currency expressed in such Security or coupon (or, in the case of redemption,
on the Redemption Date) and to convert such Security in accordance with
Article Twelve, or to institute suit for the enforcement of any such payment
or right to convert, and such rights shall not be impaired or affected
without the consent of such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder of a Security or coupon has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the
Trustee and the Holders of Securities and coupons shall be restored severally
and respectively to their former positions hereunder, and thereafter all
rights and remedies of the Trustee and the
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Holders shall continue as though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in Section 507 or with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities or
coupons in the last paragraph of Section 306, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders of Securities or
coupons is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of a Security or
coupon to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given by
this Article or by law to the Trustee or the Holders of Securities or coupons
may be exercised from time to time, and as often as may be deemed expedient,
by the Trustee or by the Holders of Securities or coupons, as the case may be.
SECTION 512. CONTROL BY HOLDERS OF SECURITIES.
The Holders of a majority in principal amount of the Outstanding
Securities (or such lesser amount as shall have acted at a meeting pursuant
to the provisions of this Indenture) shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee, PROVIDED
that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture, including, but not limited to Section 507 and 602(e)
hereof, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
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SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities (or such lesser amount as shall have acted at a
meeting pursuant to the provisions of this Indenture) may on behalf of the
Holders of all the Securities and coupons waive any past default hereunder
and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Eight cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Security or coupon by his acceptance thereof shall be deemed to have agreed,
that any court may in its discretion require, in any suit for the enforcement
of any right or remedy under this Indenture, or in any suit against the
Trustee for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the
costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Company, to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10 per cent. in principal amount
of the Outstanding Securities, or to any suit instituted by any Holder of any
Security or coupon for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Security or the payment of any coupon on
or after the respective Stated Maturities expressed in such Security or
coupon (or in the case of redemption, on or after the
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Redemption Date) or for the enforcement of the right to convert any Security
in accordance with Article Twelve.
SECTION 515. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension
law wherever enacted, now or at any time hereafter in force, which may affect
the covenants or the performance of this Indenture; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
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ARTICLE SIX
The Trustee
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent
failure to act, or its own wilful misconduct, EXCEPT that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, Responsible Officers or trust
committee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
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(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities (or such lesser amount as shall have acted at a
meeting pursuant to the provisions of this Indenture) relating to the
time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the
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Trustee (unless other evidence be herein specifically prescribed) may, in
the absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders of Securities or coupons pursuant to this
Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder.
SECTION 603. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities (except the
Trustee's certificates of authentication) and in the coupons shall be taken
as the statements of the Company, and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations
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as to the validity or sufficiency of this Indenture or of the Securities or
coupons. The Trustee shall not be accountable for the use or application by
the Company of Securities or the proceeds thereof.
SECTION 604. MAY HOLD SECURITIES, ACT AS TRUSTEE UNDER OTHER
INDENTURES.
The Trustee, any Paying Agent, any Transfer Agent, any Conversion
Agent, any Security Registrar or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of
Securities and coupons and may otherwise deal with the Company with the same
rights it would have if it were not Trustee, Paying Agent, Transfer Agent,
Conversion Agent, Security Registrar or such other agent.
The Trustee may become and act as trustee under other indentures
under which other securities, or certificates of interest or participation in
other securities, of the Company are outstanding in the same manner as if it
were not Trustee.
SECTION 605. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest or any money received by it hereunder except
as otherwise agreed with the Company.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense,
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disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance or
administration of this trust or the exercise or performance by the
Principal Paying Agent of its powers or duties, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties or the
exercise or performance by the Principal Paying Agent of its powers or
duties hereunder.
As security for the performance of the obligations of the Company
under this Section the Trustee shall have a claim prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust (whether or not segregated) for the payment of principal
of (and premium, if any) or interest on Securities.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States
of America, any State thereof or the District of Columbia, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least U.S. $50,000,000, subject to supervision or examination
by Federal or State authority and having a corporate trust office in the
Borough of Manhattan, The City of New York. If such corporation publishes
reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
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SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time giving written notice thereof
to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within
30 days after the giving of such notice of resignation, the resigning Trustee
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
a majority in principal amount of the Outstanding Securities (or such lesser
amount as shall have acted at a meeting pursuant to the provisions of this
Indenture), delivered to the Trustee and the Company.
(d) If at any time:
(1) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or by
any Holder of a Security who has been a bona fide Holder of a Security
for at least six months, or
(2) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder of a Security who has
been a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
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(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause,
the Company, by a Board Resolution, shall promptly appoint a successor
Trustee and shall comply with the applicable requirements of Section 609. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Securities
(or such lesser amount as shall have acted at a meeting pursuant to the
provisions of this Indenture) delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable requirements
of Section 609, become the successor Trustee and supersede the successor
Trustee appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders of Securities and accepted
appointment in the manner required by Section 609, any Holder of a Security
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided in Section 105. Each notice
shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee; but,
on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder. Upon
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request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be eligible under this
Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
without the execution or filing of any paper or any further act on the part
of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Securities so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
SECTION 611. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents which
shall be authorized to act on behalf of the Trustee to authenticate
Securities issued upon original issue and upon exchange, registration or
transfer, partial conversion or partial redemption or pursuant to Section 304
or Section 306, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes
as if authenticated by the Trustee hereunder. Wherever reference is made in
this Indenture to the authentication and delivery or endorsement of
Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery or
endorsement on behalf of the Trustee by an Authenticating Agent and a
certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of
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the United States of America, any State thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers and to act as
Authenticating Agent, having a combined capital and surplus of not less than
U.S. $50,000,000, subject to supervision or examination by Federal or State
authority and having its corporate trust office in the Borough of Manhattan,
The City of New York. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section
611, the combined capital and surplus of such Authenticating Agent shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of an Authenticating Agent, shall continue
to be an Authenticating Agent, provided such corporation shall be otherwise
eligible under this Section 611, without the execution or filing of any paper
or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall
provide notice of such appointment to all Holders of Securities in the manner
provided in Section 105. Any successor Authenticating Agent upon acceptance
of its appointment hereunder shall become vested with all the rights, powers
and duties of its predecessor hereunder with like effect as if originally
named as an Authenticating Agent. No successor Authenticating Agent
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shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section 611.
If an appointment is made pursuant to this Section, the Securities
may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
This is one of the Securities referred to in the within-mentioned
Indenture.
BANKERS TRUST COMPANY
as Trustee
By:
---------------------------
As Authenticating Agent
By:
---------------------------
Authorized Signatory
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ARTICLE SEVEN
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 701. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other
Person or convey, transfer or lease all or substantially all of its
properties and assets to any Person, unless:
(1) the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer,
or which leases, the properties and assets of the Company substantially
as an entirety shall be a corporation, organized and validly existing
under the laws of the United States of America, any State thereof or the
District of Columbia, shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest (including all additional
interest payable pursuant to Section 1004) on all the Securities and the
performance of every covenant of this Indenture on the part of the
Company to be performed or observed and shall have provided for
conversion rights in accordance with Section 1211, and shall expressly
waive, by such indenture supplemental hereto, any right to redeem the
Securities under circumstances in which the Company would not have been
entitled to redeem the Securities if such consolidation, merger,
conveyance, transfer or lease had not occurred;
(2) immediately after giving effect to such transaction, no Event of
Default and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this
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Article and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 702. SUCCESSOR SUBSTITUTED.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of the properties
and assets of the Company substantially as an entirety in accordance with
Section 701, the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if
such successor corporation had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor corporation shall
be relieved of all obligations and covenants under this Indenture and the
Securities and coupons.
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ARTICLE EIGHT
Supplemental Indentures
SECTION 801. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders of Securities or coupons, the
Company, when authorized by a Board Resolution, and the Trustee at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following
purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
herein in the Securities and in the coupons; or
(2) to add to the covenants of the Company for the benefit of the
Holders of Securities or coupons, or to surrender any right or power
herein conferred upon the Company; or
(3) to relax or eliminate the restrictions on payment of principal
of (and premium, if any) and interest on Bearer Securities in the United
States under the circumstances described in the last sentence of the
first paragraph of the face of the form of Bearer Securities set forth in
Section 202; or
(4) to make provision with respect to the conversion rights of
Holders of Securities pursuant to Section 1211; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture, PROVIDED such action pursuant to this clause (5)
shall not adversely affect the interest of the Holders of Securities or
coupons in any material respect.
SECTION 802. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities
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(or such lesser amount as shall have acted at a meeting pursuant to the
provisions of this Indenture), by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders of the Securities or coupons under this
Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security or coupon
affected thereby,
(1) change the Stated Maturity of the principal of, or any
instalment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the obligation of the Company to pay
additional interest pursuant to Section 1004 or change the coin or currency
in which any Security or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date), or adversely affect the right to convert any
Securities as provided in Article Twelve or modify the provisions of this
Indenture with respect to the subordination of the Securities in a manner
adverse to the Holders, or
(2) reduce the requirements of Section 904 for quorum or voting, or
reduce the percentage in principal amount of the Outstanding Securities
the consent of whose Holders is required for any such supplemental
indenture or the consent of whose Holders is required for any waiver (or
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(3) change the obligation of the Company to maintain an office or
agency in the Borough of Manhattan, The City of New York, and in a
European city pursuant to Section 1002, or
(4) modify any of the provisions of this Section, Section 513 or
Section 1009, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby.
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It shall not be necessary for any Act of Holders of Securities under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if any Act shall approve the substance
thereof.
SECTION 803. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise.
SECTION 804. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder and of any coupons appertaining thereto shall be bound
thereby.
SECTION 805. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Company and the Trustee, to any such supplemental indenture may be prepared
and executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
SECTION 806. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the
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provisions of Section 802, the Company shall give notice, setting forth in
general terms the substance of such supplemental indenture, in the manner
provided in Section 105. Any failure of the Company to give such notice, or
any defect therein, shall not in any way impair or affect the validity of any
such supplemental indenture.
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ARTICLE NINE
Meetings of Holders of Securities
SECTION 901. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities may be called at any time and
from time to time pursuant to this Article to make, give or take any request,
demand, authorization, direction, notice, consent, election, waiver or other
action provided by this Indenture to be made, given or taken by Holders of
Securities.
SECTION 902. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities for any purpose specified in Section 901, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, or in
London as the Trustee shall determine. Notice of every meeting of Holders of
Securities, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 105, not less than 21 nor more than
180 days prior to the date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board
Resolution, or the Holders of at least 10 per cent. in principal amount of
the Outstanding Securities shall have requested the Trustee to call a meeting
of the Holders of Securities for any purpose specified in Section 901, by
written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have made the first
publication of the notice of such meeting within 21 days after receipt of
such request or shall not thereafter proceed to cause the meeting to be held
as provided herein, then the Company or the Holders of Securities in the
amount above specified, as the case may be, may determine the time and the
place in the Borough of Manhattan, The City of New York, or in London for
such meeting and may call such meeting for such purposes by giving notice
thereof as provided in subsection (a) of this Section.
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SECTION 903. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities, a
Person shall be (1) a Holder of one or more Outstanding Securities, or (2) a
Person appointed by an instrument in writing as proxy for a Holder or Holders
of one or more Outstanding Securities by such Holder or Holders. The only
Persons who shall be entitled to be present or to speak at any meeting of
Holders shall be the Persons entitled to vote at such meeting and their
counsel, and representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
SECTION 904. QUORUM; ACTION.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting
shall, if convened at the request of Holders of Securities, be dissolved. In
any other case the meeting may be adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the adjournment of
such adjourned meeting. Notice of the reconvening of any adjourned meeting
shall be given as provided in Section 902(a), except that such notice need be
given only once not less than five days prior to the date on which the
meeting is scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage of the principal
amount of the Outstanding Securities which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting
adjourned for a lack of a quorum the Persons entitled to vote 25 per cent.
in principal amount of the Outstanding Securities at the time shall
constitute a quorum for the taking of any action set forth in the notice of
the original meeting.
Except as limited by the proviso to Section 802, any modifications,
amendments or waivers to this Indenture or the terms and conditions of the
Securities or coupons shall require the lesser of (i) the written consent of
the holders of a majority in principal amount of the Outstanding
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Securities or (ii) the approval of persons entitled to vote a majority of the
principal amount of such Securities represented and voting at a meeting of
the Holders duly called in accordance with the provisions hereof and at which
a quorum is present.
Any modification, amendment or waiver approved in accordance with
the provisions of the next preceding paragraph shall be binding on all the
Holders of Securities and coupons, whether or not present or represented at
the meeting.
SECTION 905. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT
OF MEETINGS.
(a) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders of Securities in regard to proof of the holding of
Securities and of the appointment of proxies and in regard to the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate. Except as
otherwise permitted or required by any such regulations, the holding of
Securities shall be proved in the manner specified in Section 103 and the
appointment of any proxy shall be proved in the manner specified in Section
103 or by having the signature of the person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 103 to
certify to the holding of Bearer Securities. Such regulations may provide
that written instruments appointing proxies, regular on their face, may be
presumed valid and genuine without the proof specified in Section 103 or
other proof.
(b) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called
by the Company or by Holders of Securities as provided in Section 902(b), in
which case the Company or the Holders of Securities calling the meeting, as
the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be elected
by vote of the Persons entitled to vote a majority in principal amount of the
Outstanding Securities represented at the meeting.
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(c) At any meeting each Holder of a Security or proxy shall be
entitled to one vote for each U.S. $5,000 principal amount of Securities held
or represented by him; PROVIDED, HOWEVER, that no vote shall be cast or
counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the chairman of the meeting to be not Outstanding.
The chairman of the meeting shall have no right to vote, except as a Holder
of a Security or proxy.
(d) Any meeting of Holders of Securities duly called pursuant to
Section 902 at which a quorum is present may be adjourned from time to time
by Persons entitled to vote a majority in principal amount of the Outstanding
Securities represented at the meeting; and the meeting may be held as so
adjourned without further notice.
SECTION 906. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy
and the principal amounts and serial numbers of the Outstanding Securities
held or represented by them. The permanent chairman of the meeting shall
appoint two inspectors of votes who shall count all votes cast at the meeting
for or against any resolution and who shall make and file with the secretary
of the meeting their verified written reports in duplicate of all votes cast
at the meeting. A record, at least in duplicate, of the proceedings of each
meeting of Holders of Securities shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of
the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was given as provided in
Section 902 and, if applicable, Section 904. Each copy shall be signed and
verified by the affidavits of the permanent chairman and secretary of the
meeting and one such copy shall be delivered to the Company and another to
the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting. Any record so signed and verified
shall be conclusive evidence of the matters therein stated.
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ARTICLE TEN
Covenants
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Securities in accordance with the terms
of the Securities, the coupons appertaining thereto and this Indenture. The
interest due on the Bearer Securities on or before Maturity, other than
additional interest payable as provided in Section 1004 in respect of
principal of (or premium, if any, on) such a Security, shall be payable only
upon presentation and surrender of the several coupons for such interest
installments as are evidenced thereby as they severally mature.
SECTION 1002. MAINTENANCE OF OFFICES OR AGENCIES.
Pursuant to the Paying Agency Agreement, the Company has appointed
(1) the Principal Office of Morgan Guaranty Trust Company of New York as its
agent in the Borough of Manhattan, The City of New York, where Registered
Securities may be presented or surrendered for payment, where Bearer
Securities and coupons may be presented or surrendered for payment in the
circumstance described in the next sentence (and not otherwise), where
Securities may be surrendered for registration of transfer or exchange, where
Registered Securities may be surrendered for conversion, where Bearer
Securities may be surrendered for conversion in the circumstance described in
the next sentence (and not otherwise) and where notices to or upon the
Company in respect of the Securities and coupons and this Indenture may be
served and demands to or upon the Company with respect to Registered
Securities may be made, (2) the main office of Banque Internationale a
Luxembourg S.A. in Luxembourg as its agent outside the United States where,
subject to any applicable laws or regulations, Securities and coupons may be
presented and surrendered for payment and where Securities may be presented
for registration of transfer or exchange and where demands upon the Company
in respect of Bearer Securities and coupons may be made and (3) the main
office of Morgan Guaranty Trust Company of New York in Brussels and Banque
Internationale a Luxembourg S.A. in Luxembourg as its agents outside the
United States where, subject to any applicable laws or regulations, Securities
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may be surrendered for conversion. As provided in the forms of Security set
forth in Section 202, (i) payment of principal of and premium, if any, and
interest on Bearer Securities and payment of any additional interest payable
on Bearer Securities pursuant to Section 1004 may be made at the Principal
Office of the Principal Paying Agent in the Borough of Manhattan, The City of
New York, if (but only if) payment of the full amount of such principal,
premium, interest or additional interest, as the case may be, at all offices
outside the United States maintained for the purpose by the Company in
accordance with this Indenture is illegal or effectively precluded because of
the imposition of exchange controls or other similar restrictions on the full
payment or receipt of such amounts in Dollars and (ii) Bearer Securities may
be surrendered for conversion at such office if (but only if) conversion at
all offices outside the United States maintained for the purpose by the
Company in accordance with this Indenture is illegal or effectively precluded
because of the imposition of exchange controls or other similar restrictions.
In addition, the Company has appointed the main offices of Morgan
Guaranty Trust Company in London, Algemene Bank Nederland N.V. in Amsterdam
and Swiss Bank Corporation in Basel as additional Paying Agents for the
payment of principal of (and premium, if any) and interest on the Bearer
Securities.
The Company may at any time and from time to time vary or terminate
the appointment of any such agent or appoint any additional agents for any or
all of such purposes; PROVIDED, HOWEVER, that until the Securities have been
delivered to the Trustee or the Principal Paying Agent for cancellation, or
moneys sufficient to pay the principal of and premium, if any, and interest
on the Securities have been made available for payment and either paid or
returned to the Company pursuant to the provisions of Section 1003, the
Company will maintain (1) in the Borough of Manhattan, The City of New York,
an office or agency where Registered Securities may be presented or
surrendered for payment, where Bearer Securities and coupons may be presented
or surrendered for payment in the circumstance described in the last sentence
of the first paragraph of this Section (and not otherwise), where Securities
may be surrendered for registration of transfer or exchange, where Registered
Securities may be surrendered for conversion, where Bearer Securities may be
surrendered for conversion in the circumstances described in the last
sentence of the first paragraph of this Section (and not otherwise), and where
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notices to or upon the Company in respect of the Securities and coupons and
this Indenture may be served and demands to or upon the Company with respect
to Registered Securities may be made and (2) subject to any laws or
regulations applicable thereto, in a European city an office or agency where
Securities and coupons may be presented or surrendered for payment and where
Securities may be presented for registration of transfer or exchange and
surrendered for conversion and were demands upon the Company in respect of
Bearer Securities and coupons may be made; and PROVIDED, FURTHER, that so
long as the Securities are listed on the Luxembourg Stock Exchange and such
Exchange shall so require, the Company will maintain a Paying Agent and
Conversion Agent in Luxembourg. The Company will give prompt written notice
to the Trustee and the Principal Paying Agent and the Holders of the
appointment or termination of any such agent and of the location and any
change in the location of any such office or agency.
If at any time the Company shall fail to maintain any such required
office or agency in the Borough of Manhattan, The City of New York, or in a
European city, or shall fail to furnish the Trustee with the address thereof,
presentations and surrenders of Registered Securities may be made (subject to
the limitations described in the preceding paragraph) at and notices and
demands may be served on and Registered Securities may be surrendered for
conversion to the Corporate Trust Office of the Trustee, and Bearer
Securities and coupons may be presented and surrendered for payment or
surrendered for conversion to the Trustee at its main office in London, and
the Company hereby appoints the same as its agent to receive such
presentations, surrenders, notices and demands.
SECTION 1003. MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST.
If the Company shall act as a Paying Agent, it will, on or before
each due date of the principal of (and premium, if any) or interest on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any)
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and the Company will promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
on or prior to each due date of the
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principal of (and premium, if any) or interest on any Securities, deposit
with a Paying Agent a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
has agreed with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Securities in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability
with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (and
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due
and payable shall be repaid to the Company on Company Request, or (if then
held by the Company) shall be dis-
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charged from such trust; and the Holder of such Security or any coupon
appertaining thereto shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the
Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause notice to be given as
provided in Section 105, except that such notice need be given only once,
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the latest date of such notice, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. ADDITIONAL INTEREST.
The Company will pay as additional interest to the Holder of any
Security or any coupon appertaining thereto any additional interest which may
become payable as provided in the second paragraph on the face of the forms
of Securities set forth in Section 202 and any additional interest which may
become payable as provided in the fourth paragraph on the face of the forms
of Securities set forth in Section 202. Whenever in this Indenture there is
mentioned, in any context, the payment of the principal of (or premium, if
any) or interest on, or in respect of, any Security or any coupon, such
mention shall be deemed to include mention of the payment of additional
interest provided for in this Section to the extent that, in such context,
additional interest is, was or would be payable in respect thereof pursuant
to the provisions of this Section and express mention of the payment of
additional interest (if applicable) in any provision hereof shall not be
construed as excluding additional interest in those provisions hereof where
such express mention is not made.
At least 10 days prior to May 21, 1988 (and at least 10 days prior
to each May 21 thereafter if there has been any change with respect to the
matters set forth in the below-mentioned Officers' Certificate) the Company
will furnish the Trustee and the Principal Paying Agent in the Borough of
Manhattan, The City of New York, with an Officers' Certificate instructing
the Trustee and the Principal Paying Agent whether such payment of principal
of (and premium, if any) or interest on the Securities shall be made to
Holders of Securities or coupons who are United States Aliens without
withholding for or on account of any
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tax, assessment or other governmental charge described in the second
paragraph on the face of the forms of Securities set forth in Section 202. If
any such withholding shall be required, then such Officers' Certificate shall
specify by country the amount, if any, required to be withheld on such
payments to such Holders of Securities or coupons and the Company will pay to
the Trustee or such Paying Agent the additional interest required by this
Section to be paid in the event of any such withholding. The Company
covenants to indemnify the Trustee, the Principal Paying Agent and any other
Paying Agent for, and to hold them harmless against, any loss, liability or
expense reasonably incurred without negligence or bad faith on their part
arising out of or in connection with actions taken or omitted by any of them
in reliance on any Officers' Certificate furnished pursuant to this Section.
SECTION 1005. CORPORATE EXISTENCE.
Subject to Article Seven, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter or statutory) and franchises and that of
each of its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right or franchise of any Subsidiary if the
Company shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries, taken as
a whole, and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct
of its business or the business of any Subsidiary to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company
from discontinuing the operation or maintenance of any of such properties if
such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
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SECTION 1007. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged
(1) all taxes, assessments and governmental charges levied or imposed upon
the Company or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of
the Company or any Subsidiary; PROVIDED, HOWEVER, that the Company shall not
be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 1008. STATEMENT OF OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year (which on the date hereof ends on June 30) of the
Company ending after the date hereof, an Officers' Certificate, stating
whether or not to the best knowledge of the signers thereof the Company is in
default in the performance and observance of any of the terms, provisions and
conditions of this Indenture, and if the Company shall be in default,
specifying all such defaults and the nature and status thereof of which they
may have knowledge.
SECTION 1009. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 1005 to 1007, inclusive,
if before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities (or such lesser amount as
shall have acted at a meeting pursuant to the provisions of this Indenture)
shall, by Act of such Holders, either waive such compliance in such instance
or generally waive compliance with such term, provision or condition, but no
such waiver shall extend to or affect such term, provision or condition
except to the extent so expressly waived, and, until such waiver shall become
effective, the obligations of the Company and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force
and effect.
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SECTION 1010. WAIVER OF USURY LAWS.
The Company shall not insist (to the extent that it may lawfully do
so) at any time upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury or similar law which would prohibit or
forgive the Company from paying all or any portion of the interest on the
Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force.
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ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. RIGHT OF REDEMPTION.
The Securities may be redeemed subject to the conditions, at the
times and at the Redemption Prices specified in the forms of Securities set
forth in Section 202, together with accrued interest to the Redemption Date;
PROVIDED, HOWEVER, that until the ninetieth day after the Exchange Date, the
Company may not redeem the Securities other than under the circumstances
described in the third paragraph on the reverse side of such forms (involving
United States taxes) or in the fourth paragraph on the reverse side of such
forms (involving certification requirements).
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Securities, as permitted or required by any provision
of the Securities or this Indenture, shall be made in accordance with such
provision and this Article.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has
been or is to be redeemed.
SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE
The election of the Company to redeem any Securities shall be
evidenced by a Board Resolution. In case of any redemption of all of the
Securities, the Company shall, at least 60 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee and the Principal Paying Agent), notify the Trustee and the Principal
Paying Agent of such Redemption Date. In case of any redemption of less than
all the Securities, the Company shall, at least 75 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee and the Principal Paying Agent), notify the
Trustee and the Principal Paying Agent of such Redemption Date and of the
principal amount of Securities to be redeemed. If
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the Securities are to be redeemed pursuant to an election of the Company
which is subject to a condition specified in the forms of Securities set
forth in Section 202, the Company shall furnish the Trustee and the Principal
Paying Agent with (i) an Officers' Certificate stating that the Company is
entitled to effect such redemption and setting forth a statement of facts
showing that the conditions precedent to the right of the Company to so
redeem have occurred and (ii) with respect to a redemption as a result of
the circumstances described in the third paragraph on the reverse of the form
of Securities set forth in Section 202, an opinion of independent counsel
(who shall be reasonably satisfactory to the Trustee) to such effect based on
such statement of facts.
SECTION 1104. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the particular
Securities to be so redeemed shall be selected not more than 60 days prior to
the Redemption Date by the Principal Paying Agent, from the Outstanding
Securities not previously called for redemption, by such method as the
Trustee shall deem fair and equitable and which may provide for the selection
for redemption of portions (equal to U.S. $5,000 or any integral multiple
thereof) of the principal amount of Registered Securities of a denomination
larger than U.S. $5,000. Partial redemptions of Securities at the option of
the Company may only be made in aggregate principal amounts of not less than
U.S. $1,000,000.
If any Registered Security selected for partial redemption is
converted in part before termination of the conversion right with respect to
the portion of the Security so selected, the converted portion of such
Security shall be deemed (so far as may be) to be the portion selected for
redemption. Securities which have been converted during a selection of
Securities to be redeemed may be treated by the Principal Paying Agent as
Outstanding for the purpose of such selection.
The Principal Paying Agent shall promptly notify the Company, the
Trustee and each Security Registrar in writing of the Securities selected for
redemption and, in the case of any Registered Securities selected for
partial redemption, the principal amount thereof to be redeemed.
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SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in
Section 105 to the Holders of Securities to be redeemed. If all of the
Outstanding Securities are to be so redeemed, notice shall be given once not
less than 30 nor more than 60 days prior to the Redemption Date. If less than
all the Outstanding Securities are to be so redeemed, notice shall be given
twice, the first such notice to be given not more than 75 nor less than 60
days prior to the Redemption Date and the second notice to be given at least
20 days after the first such notice but not less than 30 days prior to the
Redemption Date.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be redeemed,
the aggregate principal amount of Securities to be redeemed and the
aggregate principal amount of Securities which will be Outstanding after
such partial redemption,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed, and that interest
thereon shall cease to accrue on and after said date,
(5) the Conversion Price, the date on which the right to convert the
principal of the Securities to be redeemed will terminate and the place
or places where such Securities may be surrendered for conversion, and
(6) the place or places where such Securities, together in the case
of Bearer Securities with all coupons appertaining thereto, if any,
maturing after the Redemption Date, are to be surrendered for payment of
the Redemption Price.
In case of a partial redemption, the first notice given shall
specify the last date on which exchanges or transfers of Securities may be
made pursuant to Section 305, and the second notice shall specify the serial
numbers of the Bearer Securities called for redemption and, in the case of
Registered Securities, the serial numbers and the portions thereof called for
redemption.
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Notice of redemption of Securities to be redeemed shall be given by
the Company or, at the Company's request, by the Principal Paying Agent in
the name of and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Company shall deposit with
the Principal Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest on, all
the Securities which are to be redeemed on that date other than any
Securities called or tendered for redemption on that date which have been
converted prior to the date of such deposit.
If any Security called or tendered for redemption is converted, any
money deposited with the Principal Paying Agent or so segregated and held in
trust for the redemption of such Security shall (subject to any right of the
Holder of such Security or any Predecessor Security to receive interest as
provided in the last paragraph of Section 307) be paid to the Company upon
Company Request or, if then held by the Company, shall be discharged from
such trust.
SECTION 1107. SECURITIES PAYABLE ON REDEMPTION DATE
Notice of redemption having been given as aforesaid, the Securities
so to be redeemed shall, on the Redemption Date, become due and payable at
the Redemption Price therein specified, and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest and the coupons for
such interest appertaining to Bearer Securities shall, except to the extent
provided below, be void. Upon surrender of any such Security for redemption
in accordance with said notice, together with all coupons, if any,
appertaining thereto maturing after the Redemption Date, such Security shall
be paid by the Company at the Redemption Price together with accrued interest
to the Redemption Date; PROVIDED, HOWEVER, that installments of interest on
Bearer Securities whose Stated Maturity is on or prior to the Redemption Date
shall be payable only upon presentation and surrender of coupons for such
interest (at an office or agency outside the United States except as
otherwise provided in the forms of
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Security set forth in Section 202); and PROVIDED, FURTHER, that installments
of interest on Registered Securities whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or
one or more Predecessor Securities, registered as such at the close of
business on the relevant Record Date according to their terms and the
provisions of Section 307.
If any Security called or tendered for redemption shall not be paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant coupons maturing after the Redemption Date,
such Security may be paid after deducting from the Redemption Price an amount
equal to the face amount of all such missing coupons or the surrender of such
missing coupon or coupons may be waived by the Company and the Trustee or the
Principal Paying Agent, if there be furnished to them such security or
indemnity as they may require to save each of them and any Paying Agent
harmless. If thereafter the Holder of such Security shall surrender to any
Paying Agent any such missing coupon in respect of which a deduction shall
have been made from the Redemption Price, such Holder shall be entitled to
receive the amount so deducted; PROVIDED, HOWEVER, that interest represented
by coupons shall be payable only upon presentation and surrender of those
coupons at an office or agency located outside of the United States (except
as otherwise provided in the forms of Security set forth in Section 202).
SECTION 1108. REGISTERED SECURITIES REDEEMED IN PART.
Any Registered Security which is to be redeemed only in part shall
be surrendered at an office or agency of the Company designated for that
purpose pursuant to Section 1002 (with, if the Company or the Trustee or the
Principal Paying Agent so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee
and the Principal Paying Agent duly executed by, the Holder thereof or his
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Registered
Security without service charge, a new Registered Security or Securities, of
any authorized
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denomination as requested by such Holder, in aggregate principal amount equal
to and in exchange for the unredeemed portion of the principal of the
Registered Security so surrendered.
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ARTICLE TWELVE
Conversion of Securities
SECTION 1201. CONVERSION PRIVILEGE AND CONVERSION PRICE.
Subject to and upon compliance with the provisions of this Article,
at the option of the Holder thereof, any definitive Security or, in the case
of any Registered Security, any portion of the principal amount thereof which
is U.S. $5,000 or an integral multiple of U.S. $5,000 may be converted at the
principal amount thereof, or of such portion thereof, into fully paid and
nonassessable shares (calculated as to each conversion to the nearest 1/100
of a share) of Common Stock, at the Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. Such conversion
right shall commence at the opening of business on the Exchange Date and
expire at the close of business on May 21, 2002. In case a Security or
portion thereof is called for redemption, such conversion right in respect of
the Security or portion so called shall expire at the close of business on
the date five business days next preceding the Redemption Date, unless the
Company defaults in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially U.S.
$37.00 per share of Common Stock. The Conversion Price shall be adjusted in
certain instances as provided in paragraphs (1), (2), (3) and (5) of Section
1204.
SECTION 1202. EXERCISE OF CONVERSION PRIVILEGE.
In order to exercise the conversion privilege, the Holder of any
definitive Security to be converted shall surrender such Security, together
in the case of Bearer Securities with all unmatured coupons and any matured
coupons in default appertaining thereto, duly endorsed or assigned to the
Company or in blank, at any office or agency of the Company maintained for
that purpose pursuant to Section 1002, accompanied by written notice to the
Company at such office or agency that the Holder elects to convert such
Security or, in the case of Registered Securities, if less than the entire
principal amount thereof is to be converted, the portion thereof to be
converted that is U.S. $5,000 or an integral multiple of
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U.S. $5,000. Registered Securities surrendered for conversion during the
period from the close of business on any Regular Record Date next preceding
any Interest Payment Date to the opening of business on such Interest Payment
Date shall (except in the case of Registered Securities or portions thereof
which have been called for redemption on a Redemption Date within such
period) be accompanied by payment in funds reasonably acceptable to the
Company of an amount equal to the interest payable on such Interest Payment
Date on the principal amount of Registered Securities being surrendered for
conversion (or, if such Registered Security was issued in exchange for a
Bearer Security after the close of business on such Regular Record Date, by
surrender of one or more coupons relating to such Interest Payment Date or by
both payment in such funds and surrender of such coupon or coupons, in either
case, in an amount equal to the interest payable on such Interest Payment
Date on the principal amount of the Registered Security then being
converted). Except as provided in the preceding sentence and subject to the
last paragraph of Section 307, no payment or adjustment shall be made upon
any conversion on account of any interest accrued on the Securities
surrendered for conversion or on account of any dividends on the Common Stock
issued upon conversion.
Securities shall be deemed to have been converted immediately prior
to the close of business on the day of surrender of such Securities for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such Securities as Holders shall cease, and the
Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders
of such Common Stock at such time. As promptly as practicable on or after the
conversion date, the Company shall issue and shall deliver at such office or
agency a certificate or certificates for the number of full shares of Common
Stock issuable upon conversion, together with payment in lieu of any fraction
of a share, as provided in Section 1203.
In the case of any Registered Security which is converted in part
only, upon such conversion the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the
Company, a new Registered Security or Registered Securities of authorized
denominations in aggregate principal amount equal to the unconverted portion
of the principal amount of such Registered Securities, which new Registered
Security or
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Securities shall bear the same legend or legends as the Registered Security
surrendered for conversion.
SECTION 1203. FRACTIONS OF SHARES.
No fractional shares or scrip representing fractional shares of
Common Stock shall be issued upon conversion of Securities. If more than one
Security shall be surrendered for conversion at one time by the same Holder,
the number of full shares which shall be issuable upon conversion thereof
shall be computed on the basis of the aggregate principal amount of the
Securities (or, in the case of Registered Securities, specified portions
thereof) so surrendered. Instead of any fractional share of Common Stock
which would otherwise be issuable upon the conversion of any Security or
Securities (or in the case of Registered Securities, specified portions
thereof), the Company shall pay a cash adjustment in respect of such fraction
in an amount equal to the current market value of such fractional interest
computed to the nearest cent on the basis of the Closing Market Price Per
Share of the Common Stock on the last day prior to the day of conversion on
which there is such a Closing Market Price Per Share.
SECTION 1204. ADJUSTMENT OF CONVERSION PRICE.
(1) In case at any time after May 5, 1987 the Company shall (i) pay
or make a dividend or other distribution on any class or series of capital
stock of the Company in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares, (iv) issue by reclassification
of its Common Stock any shares of its capital stock, or (v) make a
distribution on its Common Stock in shares of its capital stock other than
Common Stock, the Conversion Price in effect immediately prior thereto shall
be adjusted so that the Holder of a Security thereafter converted may receive
the number of shares of Common Stock or capital stock of the Company which
he would have owned immediately following such action if he had converted
the Security immediately prior to such action. Such adjustment shall become
effective immediately at the opening of business on the day following the
record date, if any, in the case of a dividend, distribution, subdivision,
combination or reclassification with respect to which the Company has fixed a
record date for the determination of shareholders entitled to receive such
dividend, distribution, subdivision, combination or reclassification, or if
no such record date has been fixed, such reduction
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shall become effective immediately after the opening of business on the day
following the effective date of such dividend, distribution, subdivision,
combination or reclassification. For the purposes of paragraph (1)(i), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable
in respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any distribution
on shares of Common Stock held in the treasury of the Company.
(2) In case at any time after May 5, 1987 the Company shall issue
rights or warrants to all holders of its Common Stock entitling them
initially to subscribe for or purchase shares of Common Stock at a price per
share less than the current market price per share (determined as provided in
paragraph (4) of this Section 1204) of the Common Stock on the date fixed for
the determination of stockholders entitled to receive such rights or
warrants, the Conversion Price in effect at the opening of business on the
day following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding at the close of business
on the date fixed for such determination plus the number of shares of Common
Stock which the aggregate of the offering price of the total number of shares
of Common Stock so offered for subscription or purchase would purchase at
such current market price and the denominator shall be the number of shares
of Common Stock outstanding at the close of business on the date fixed for
such determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to be made whenever such rights or
warrants are issued and will become effective immediately at the opening of
business on the day following the date fixed for such determination. For the
purposes of this paragraph (2), the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of shares of Common Stock. The Company will not issue any
rights or warrants in respect of shares of Common Stock held in the treasury
of the Company.
(3) In case at any time after May 5, 1987 the Company shall, by
dividend or otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness or any of its assets, or any rights or warrants
entitling
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holders thereof to subscribe for or purchase securities of the Company or any
other securities (but excluding any rights or warrants referred to in
paragraph (2) of this Section 1204, any dividend or distribution paid in
cash, any dividend or distribution paid out of the surplus of the Company or
the consolidated net profits for the then current or preceding fiscal year of
the Company and any dividend or distribution referred to in paragraph (1) of
this Section), the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to such action by a fraction of which the numerator shall
be the current market price per share (determined as provided in paragraph
(4) of this Section) of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such distribution less the
then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) of the
portion of such assets or evidences of indebtedness or shares or rights or
warrants so distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such adjustment to be made whenever such distribution is made and shall
become effective immediately at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive such
distribution. In the event that the Company shall distribute or shall have
distributed to all holders of shares of Common Stock, rights or warrants to
purchase securities that are not initially detachable from the Common Stock
(whether or not such distribution shall have occurred prior to the date of
this Indenture), then the distribution of separate certificates representing
such rights or warrants subsequent to their initial distribution shall be
deemed to be the distribution of such rights or warrants for purposes of this
paragraph (3). Notwithstanding the foregoing, in the event that the Company
shall distribute rights or warrants to purchase securities ("Rights") to
holders of Common Stock, the Company may, in lieu of making the foregoing
adjustment pursuant to this paragraph (3) and to the extent such Rights would
be issued with other shares of Common Stock issued at the time of conversion,
make proper provision so that each Holder of a Security who converts such
Security (or any portion thereof) (a) before the record date for such
distribution shall be entitled to receive upon such conversion shares of
Common Stock issued with Rights and (b) after the record date for such
distribution (but prior to the expiration or redemption of the Rights) shall
be entitled to receive upon such conversion,
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in addition to the shares of Common Stock issuable upon such conversion, the
same number of Rights to which a holder of the number of shares of Common
Stock into which the principal amount of the Security so converted was
convertible immediately prior to the record date for such distribution would
have been entitled on the record date for such distribution in accordance
with the terms and provisions of and applicable to the Rights.
(4) For the purpose of any computation under paragraphs (2) and (3)
of this Section, the current market price per share of Common Stock in any
case shall be deemed to be the average of the Closing Market Prices Per Share
for 20 consecutive trading days selected by the Company during the period
commencing 30 trading days before the day in question.
(5) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1 per cent.
in the Conversion Price; PROVIDED, HOWEVER, that any adjustments which by
reason of this paragraph (5) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.
(6) No adjustment in the Conversion Price shall be required in the
case of transactions (i) in which the Holders of Securities are entitled to
participate on a basis and with notice that the Board of Directors determines
to be fair and appropriate or (ii) which effectuate a change in the par value
or lack thereof of the Common Stock.
(7) The Company from time to time may reduce the Conversion Price
by any amount for any period of time, provided that the reduction is
effective for at least 20 days and that the reduction is irrevocable during
such period. Whenever the Conversion Price is reduced, the Company shall
publish notice of the reduction to Holders of Securities. The Company shall
publish such notice at least 15 days before the date the reduced Conversion
Price takes effect. The notice shall state the reduced Conversion Price and
the period it will be in effect. After the expiration of such period, the
Conversion Price shall revert to the price immediately preceding such
reduction. The Company may also, from time to time, reduce the Conversion
Price in order to avoid taxation of the Company's stockholders in connection
with the transactions described in this Section
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1204. The Company may, but is not required to, reduce the Conversion Price if
the making of, or a failure to make, an adjustment in the Conversion Price
under this Article would cause imposition of a tax on the Company's
stockholders.
(8) In any case in which this Section 1204 shall require that an
adjustment be made, the Company may elect to defer (but only until five
Business Days in the Place of Conversion following the effective date of such
adjustment) the issuance to the holder of any Securities converted after such
effective date of the shares of Common Stock or rights or warrants issuable
on such conversion in excess of or in addition to the shares of Common Stock
issuable on such conversion on the basis of the Conversion Price prior to
such adjustment.
SECTION 1205. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Section 1204 and shall prepare a certificate signed by
the Treasurer of the Company setting forth the adjusted Conversion Price
and showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed with the Trustee and
at each office or agency maintained for the purpose of conversion of
Securities pursuant to Section 1002; and
(b) a notice stating that the Conversion Price has been adjusted
and setting forth in reasonable detail the facts upon which such
adjustment is based the adjusted Conversion Price shall as soon as
practicable after the effectiveness of such adjustment be mailed by the
Company to all Registered Holders at their last addresses as they shall
appear in the Security Register and shall be published (but only once) in
accordance with Section 105.
SECTION 1206. NOTICE OF CERTAIN CORPORATE ACTION.
In case at any time after May 5, 1987:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable
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otherwise than in cash or out of its surplus or its consolidated net
profits for its then current or preceding fiscal year; or
(b) the Company shall authorize the granting to all holders of its
Common Stock of rights or warrants to subscribe for or purchase Common
Stock or of any other rights; or
(c) there shall occur any reclassification of the Common Stock of
the Company (other than a subdivision or combination of its outstanding
shares of Common Stock), or any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the
Company is required, or the sale or transfer of all or substantially all
of the assets of the Company; or
(d) there shall occur the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then (unless the Company has filed and mailed a notice pursuant to Section
1205 with respect to the events described in this Section 1206) the Company
shall cause to be filed with the Trustee and at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section
1002, and shall cause to be mailed to all Registered Holders at their last
addresses as they shall appear in the Security Register and shall publish
(but only once) in accordance with Section 105, in each case, at least 20
days (or 10 days in any case specified in clause (a) or (b) above) prior to
the applicable record date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, rights or warrants are to be determined, or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give any such notice, or any defect
therein, shall not
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affect the validity of the proceedings referred to in clauses (a), (b), (c)
or (d) above.
SECTION 1207. COMPANY TO RESERVE COMMON STOCK.
The Company shall at all times reserve and keep available, free from
pre-emptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Securities, the full number of shares
of Common Stock then issuable upon the conversion of all Outstanding
Securities.
The Company shall promptly after the issuance of the Global Security
endeavor (i) to cause all registrations with, and to obtain any approval by,
any governmental authority under any Federal or state law of the United
States that may be required before the shares of Common Stock may be lawfully
issued or transferred and delivered pursuant to this Article and (ii) to list
or arrange for the quotation of the shares of Common Stock required to be
issued or delivered upon conversion of Securities prior to such issue or
delivery on each national securities exchange or quotation system on which
the outstanding Common Stock is listed or quoted at the time of such delivery.
SECTION 1208. TAXES ON CONVERSIONS.
The Company will pay any and all stamp, excise or similar taxes or
duties that may be payable in respect of the issue or delivery of shares of
Common Stock on conversion of Securities pursuant hereto. The Company shall
not, however, be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that of the Holder of the Security or
Securities to be converted, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Company the
amount of any such tax or duty, or has established to the satisfaction of the
Company that such tax or duty has been paid.
SECTION 1209. COVENANT AS TO COMMON STOCK.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and
nonassessable and, except as provided in Section 1208, the Company will pay
all taxes or duties, liens and charges with respect to the issue thereof.
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SECTION 1210. CANCELLATION OF CONVERTED SECURITIES.
All Securities delivered for conversion shall be delivered to the
Principal Paying Agent to be cancelled by or at the direction of the
Principal Paying Agent, which shall dispose of the same as provided in
Section 309.
SECTION 1211. PROVISIONS IN CASE OF CONSOLIDATION, MERGER, SALE OF
ASSETS OR RECLASSIFICATION.
(a) In case of any consolidation of the Company with, or merger of
the Company into, any other corporation (other than a merger or consolidation
in which the Company is the continuing corporation), or in case of any sale
or transfer of all or substantially all of the properties and assets of the
Company as an entirety, the corporation formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
shall execute and deliver to the Trustee a supplemental indenture providing
that the Holder of each Security then outstanding shall have the right
thereafter, during the period such Security shall be convertible as specified
in Section 1201, to convert such Security, in lieu of conversion into the
shares of Common Stock deliverable on conversion immediately prior to such
event, only into the kind and amount of securities and/or cash and/or other
property, if any, receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock into which such
Security might have been converted immediately prior to such consolidation,
merger, sale or transfer, assuming, if such consolidation, merger, sale or
transfer is prior to the Exchange Date, that the Securities were convertible
at the time of such consolidation, merger, sale or transfer at the initial
Conversion Price specified in Section 1201 as adjusted from May 5, 1987 to
such time pursuant to Section 1204.
(b) In case of any reclassification or change of the shares of
Common Stock (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination) or in case of any
consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which the holders of the shares
of Common Stock thereafter receive securities and/or cash and/or other
property for such shares of Common Stock (including for this purpose shares
reflecting a change in par value or from par value to no
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par value or as a result of a subdivision or combination of the shares of
Common Stock), the Company (and any issuer of securities and/or cash and/or
property exchanged for Common Stock) shall execute and deliver to the Trustee
a supplemental indenture providing that the Holder of each Security then
outstanding shall have the right thereafter, during the period such Security
shall be convertible as specified in Section 1201, to convert such Security,
in lieu of conversion into the shares of Common Stock deliverable on such
conversion immediately prior to such event, only into the kind and amount of
securities and/or cash and/or other property, if any, receivable upon such
reclassification, change, consolidation or merger by a holder of the number of
shares of Common Stock into which such Security might have been converted
immediately prior to such reclassification, change, consolidation or merger,
assuming, if such reclassification, change, consolidation or merger is prior
to the Exchange Date, that the Securities were convertible at the time of
such reclassification, change, consolidation or merger at the initial
Conversion Price specified in Section 1201 as adjusted from May __, 1987 to
such time pursuant to Section 1204. If, as a result of this subsection (b),
the holder of any Securities thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of capital stock of
the Company, the Board of Directors (whose determination shall be conclusive
and shall be described in a Board Resolution) shall determine the allocation
of the Conversion Price between or among shares of such classes of capital
stock.
(c) Supplemental indentures referred to in subsections (a) and (b) above
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive
consolidations, mergers, sales, transfers, reclassifications or changes.
SECTION 1212. RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS.
The Trustee, subject to the provisions of Section 601, and any
Conversion Agent shall not at any time be under any duty or responsibility to
any Holder to determine whether any facts exist which may require any
adjustment of the Conversion Price, or with respect to the nature or extent
of any such adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in making
the same.
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Neither the Trustee, subject to the provisions of Section 601, nor any
Conversion Agent shall be accountable with respect to the validity or value (or
the kind or amount) of any shares of Common Stock, or of any other securities or
property, which may at any time be issued or delivered upon the conversion of
any Security; and it or they do not make any representation with respect
thereto. Neither the Trustee, subject to the provisions of Section 601, nor any
Conversion Agent shall be responsible for any failure of the Company to make any
cash payment or to issue, transfer or deliver any shares of stock or stock
Certificates or other securities or property upon the surrender of any Security
for the purpose of conversion; and the Trustee, subject to the provisions of
Section 601, and any Conversion Agent shall not be responsible for any failure
of the Company to comply with any of the covenants of the Company contained in
this Article.
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ARTICLE THIRTEEN
Subordination of Securities
SECTION 1301. SECURITIES SUBORDINATE TO SENIOR DEBT.
The Company covenants and agrees, and each Holder of a Security or
coupons appertaining thereto, by his acceptance thereof, likewise covenants
and agrees, that, to the extent and in the manner hereinafter set forth in
this Article, the indebtedness represented by the Securities and coupons
appertaining thereto and the payment of the principal of (and premium, if
any) and interest on each and all of the Securities and coupons appertaining
thereto are hereby expressly made subordinate and subject in right of payment
to the prior payment in full of all Senior Debt.
SECTION 1302. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (b) any liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (c) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of
the Company, then and in any such event the holders of Senior Debt shall be
entitled to receive payment in full of all amounts due on or in respect of
all Senior Debt, or provision shall be made for such payment in money or
money's worth, before the Holders of the Securities or the coupons
appertaining thereto or the Trustee shall be entitled to receive any payment
on account of principal of (or premium, if any) or interest on the Securities
and the coupons appertaining thereto or of this Indenture, and to that end
the holders of Senior Debt shall be entitled to receive, for application to
the payment thereof, any payment or distribution of any kind or character,
whether in cash, property or securities which may be payable or deliverable
in respect of the Securities, the coupons appertaining thereto or of this
Indenture in any such case, proceeding, dissolution, liquidation or other
winding up or event.
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In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security or any coupon appertaining
thereto shall have received any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities,
before all Senior Debt is paid in full or payment thereof provided for, and
if such fact shall, at or prior to the time of such payment or distribution,
have been made known to the Trustee or, as the case may be, such Holder, then
and in such event such payment or distribution shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt
in full, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Debt.
The consolidation of the Company with, or the merger of the Company
into, another corporation or the liquidation or dissolution of the Company
following the conveyance or transfer of its properties and assets
substantially as an entirety to another corporation upon the terms and
conditions set forth in Article Seven shall not be deemed a dissolution,
winding up, liquidation, reorganization, assignment for the benefit of
creditors or marshalling of assets and liabilities of the Company for the
purposes of this Section if the corporation formed by such consolidation or
into which the Company is merged or which acquires by conveyance or transfer
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Article Seven.
SECTION 1303. PRIOR PAYMENT TO SENIOR DEBT UPON ACCELERATION OF
SECURITIES.
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of Senior Debt
shall be entitled to receive payment in full of amounts due on or in respect
of all Senior Debt, or provision shall be made for such payment in money or
money's worth, before the Holders of the Securities or coupon appertaining
thereto are entitled to receive any payment by the Company on account of the
principal of (or premium, if any) or interest on the
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Securities or such coupons or on account of the purchase or other acquisition
of Securities or such coupons.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security or any coupon
appertaining thereto prohibited by the foregoing provision of this Section,
and if such fact shall, at or prior to the time of such payment, have been
made known to the Trustee or, as the case may be, such Holder, then and in
such event such payment shall be paid over and delivered forthwith to the
Company.
The provisions of this Section will not apply to any payment with
respect to which Section 1302 would be applicable.
SECTION 1304. NO PAYMENT WHEN SENIOR DEBT IN DEFAULT.
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior Debt
beyond any applicable grace period with respect thereto, or in the event that
any event of default with respect to any Senior Debt shall have occurred and
be continuing permitting the holders of such Senior Debt (or a trustee on
behalf of the holders thereof) to declare such Senior Debt due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or
shall have ceased to exist and any acceleration based thereon shall have been
rescinded or annulled, then no payment shall be made by the Company on
account of principal of (or premium, if any) or interest on the Securities or
the coupons appertaining thereto or on account of the purchase or other
acquisition of Securities. In the event that, notwithstanding the foregoing,
the Company shall make any payment to the Trustee or the Holder of any
Security or any coupon appertaining thereto prohibited by the foregoing
provisions of this Section, and if such fact shall then have been made known
to the Trustee or, as the case may be, such Holder, then and in such event
such payment shall be paid over and delivered forthwith to the Company.
(b) In the event any judicial proceeding shall be pending with respect
to any default in payment or event of default described in sub-paragraph (a)
above, then the Company may elect not to make any payment on account of
principal of (or premium, if any) or interest on the
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Securities or the coupons appertaining thereto or on account of the purchase
or other acquisition of Securities; provided, however, that no such payment
shall be made if such payment would prejudice the rights of the holders of
Senior Debt.
The provisions of this Section shall not apply to any payment with
respect to which Section 1302 would be applicable.
SECTION 1305. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except
during the pendency of any case, proceedings, dissolution, liquidation or
other winding up, assignment for the benefit of creditors or other
marshalling of assets and liabilities of the Company referred to in Section
1302 or under the conditions described in Section 1303 or 1304, from making
payments at any time of principal of (and premium, if any) or interest on the
Securities or coupons appertaining thereto, or (b) the application by the
Trustee or any Paying Agent of any money deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any) or
interest on the Securities or coupons appertaining thereto or the retention
of such payment by the Holders of the Securities or coupons appertaining
thereto, if, one day prior to the time of such application by the Trustee or
such Paying Agent, the Trustee or such Paying Agent did not have knowledge
that such payment would have been prohibited by the provisions of this
Article.
SECTION 1306. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR DEBT.
Subject to the payment in full of all Senior Debt, the Holders of the
Securities shall be subrogated to the extent of the payments or distributions
made to the Holders of such Senior Debt pursuant to the provisions of this
Article (equally and ratably with the holders of all "indebtedness of the
Company which by its express terms is subordinated to indebtedness of the
Company to substantially the same extent as the Securities are subordinated
and is entitled to like rights of subrogation, all such subordinated
indebtedness being hereinafter referred to as "PARI PASSU indebtedness") to
the rights of the holders of such Senior Debt to receive payments and
distributions of cash, property and securities applicable to the Senior Debt
until
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the principal of (and premium, if any) and interest on the Securities shall
be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the Holders of the Securities or the coupons appertaining
thereto or of PARI PASSU indebtedness or the Trustee or the trustee with
respect to PARI PASSU indebtedness would be entitled except for the
provisions of this Article or similar provisions applicable to PARI PASSU
indebtedness, as the case may be, and no payments over pursuant to the
provisions of this Article or similar provisions applicable to PARI PASSU
indebtedness, as the case may be, to the holders of Senior Debt by Holders of
the Securities or the coupons appertaining thereto or of PARI PASSU
indebtedness or the Trustee or the trustee with respect to PARI PASSU
indebtedness, shall, as among the Company, its creditors other than holders
of Senior Debt, and the Holders of the Securities and the coupons
appertaining thereto or of PARI PASSU indebtedness, be deemed to be a payment or
distribution by the Company to or on account of the Senior Debt.
SECTION 1307. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities and
the coupons appertaining thereto and the holders of PARI PASSU indebtedness,
on the one hand, and the holders of Senior Debt, on the other hand. Nothing
contained in this Article or elsewhere in this Indenture or in the Securities
is intended to or shall (a) impair, as among the Company, its creditors other
than holders of Senior Debt and the Holders of the Securities and the coupons
appertaining thereto, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities and the coupons
appertaining thereto the principal of (and premium, if any) and interest on
the Securities and the coupons appertaining thereto as and when the same
shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders of the Securities and
the coupons appertaining thereto and creditors of the Company other than the
holders of Senior Debt; or (c) prevent the Trustee or the Holder of any
Security or coupon appertaining thereto from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture,
subject to the rights, if any, under this Article of the holders of Senior
Debt to receive cash,
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property and securities otherwise payable or deliverable to the Trustee or
such Holder.
SECTION 1308. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Security or coupon appertaining thereto by his
acceptance thereof authorizes and directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the
subordination provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
SECTION 1309. NO WAIVER OF SUBORDINATION PROVISIONS.
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities or
the coupons appertaining thereto, without incurring responsibility to such
Holders and without impairing or releasing the subordination provided in this
Article or the obligations hereunder of such Holders to the holders of Senior
Debt, do any one or more of the following: (i) change the manner, place or
terms of payment or extend the time of payment of, or renew or alter, Senior
Debt, or otherwise amend or supplement in any manner Senior Indebtedness or
any instrument evidencing the same or any agreement under which Senior Debt
is outstanding; (ii) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Debt; (iii) release
any Person liable in any manner for the collection of Senior Debt; and (iv)
exercise or refrain from exercising any rights against the Company and any
other Person.
SECTION 1310. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would
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prohibit the making of any payment to or by the Trustee in respect of the
Securities or the coupons appertaining thereto. Notwithstanding the
provisions of this Article or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts
which would prohibit the making of any payment to or by the Trustee in
respect of the Securities or the coupons appertaining thereto, unless and
until the Trustee shall have received written notice thereof from the Company
or a holder of Senior Debt or from any trustee therefor; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 601, shall be entitled in all respects to assume that no such facts
exist.
Subject to the provisions of Section 601, the Trustee shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a holder of Senior Debt (or a trustee therefor) to establish
that such notice has been given by a holder of Senior Debt (or a trustee
therefor). In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any person as a
holder of Senior Debt to participate in any payment or distribution pursuant
to this Article, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior Debt
held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to
the rights of such Person under this Article, and if such evidence is not
furnished, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 1311. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 601, and the
Holders of the Securities and coupons appertaining thereto shall be entitled
to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
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Person making such payment or distribution, delivered to the Trustee or to
such Holders, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior Debt
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article.
SECTION 1312. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Debt and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of Securities or the
coupons appertaining thereto or to the Company or to any other Person cash,
property or securities to which any holders of Senior Debt shall be entitled
by virtue of this Article or otherwise.
SECTION 1313. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR DEBT; PRESERVATION OF
TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Debt which may at
any time be held by it, to the same extent as any other holder of Senior
Debt, and nothing in this Indenture shall deprive the Trustee of any of its
rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 606.
SECTION 1314. ARTICLE APPLICABLE TO PAYING AGENTS.
The term "Trustee" as used in this Article shall (unless the context
otherwise requires) be construed as extending to and including each Paying
Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee; PROVIDED, HOWEVER, that Section 1313 shall not apply to the Company
or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
CETUS CORPORATION
By /s/ Hollings C. Renton
-----------------------------------
Attest:
/s/ Michael S. Ostrach
- ------------------------------------
Asst Secretary
BANKERS TRUST COMPANY, as Trustee
By /s/ Michael Ravensbergen
-----------------------------------
Authorized Officer
Attest:
/s/ S. Ward
- ------------------------------------
Authorized Officer
123
<PAGE>
EXHIBIT A
[Form of certificate to be given by Euro-clear and
CEDEL S.A.]
CERTIFICATE
CETUS CORPORATION
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
This is to certify with respect to U.S. $_________ principal amount of the
above-captioned Securities (i) that we have received a certificate in writing
or tested telex with respect to each of the persons appearing in our records
as persons entitled to a portion of such principal amount (our "Qualified
Account Holders") either (a) from such Qualified Account Holder,
substantially in the form of Exhibit B to the Indenture dated as of May 21,
1987 (the "Indenture") in respect of such Securities or (b) from Swiss Bank
Corporation International Limited, substantially in the form of Exhibit D to
the Indenture, and (ii) that we are not submitting herewith for exchange any
portion of the Global Security representing the above-captioned Securities
excepted in such certificates.
We further certify that as of the date hereof we have not received any
notification from any of our Qualified Account Holders or Swiss Bank
Corporation International Limited to the effect that the statements made by
such Qualified Account Holders or Swiss Bank Corporation International
Limited, as the case may be, with respect to any portion of the part
submitted herewith for exchange are no longer true and cannot be relied upon
as of the date hereof.
We understand that this certificate is required in connection with
certain securities and tax legislation in the United States. If
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate or a copy thereof to any interested party in
such proceedings.
Dated: , 19 *
[MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, BRUSSELS OFFICE, AS OPERATOR OF
THE EURO-CLEAR CLEARANCE SYSTEM]
[CEDEL S.A.]
By
------------------------------
- ---------------
* To be dated no earlier than the Exchange Date, except in the case of an
exchange with respect to which the clearance system has received a
certificate referred to in clause (i)(b) of the first paragraph hereof.
<PAGE>
EXHIBIT B
[Form of certificate to be given by Qualified
Account Holders]
CERTIFICATE
CETUS CORPORATION
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
This is to certify that as of the date hereof (a) except as provided in
(b) below, no part of the interest in the U.S. $[ ] of the
above-described Securities appearing in your books as held for our account is
being acquired by or on behalf of a citizen or resident of the United States
of America (including the States and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction
("United States") or a corporation, partnership or other entity created or
organized in or under the laws of the United States or any State thereof or
an estate or trust the income of which is subject to United States federal
income taxation regardless of its source (a "U.S. person") or a person who
has purchased such Securities for offer to resell or for resale to a U.S.
person or to any person in the United States, and (b) U.S. $[ ] of
such Notes appearing in your books as held for our account are beneficially
owned by branches of United States banks located outside the United States
which have signed and furnished to us a letter substantially in the form of
Exhibit C to the Indenture dated as of May 21, 1987 in respect of such
Securities.
We undertake to advise you by telex if the above statement as to
beneficial ownership is not correct on [THE EXCHANGE DATE] as to all of the
above-captioned Securities then appearing in your books as being held for our
account.
We understand that this certificate is required in connection with
certain securities and tax legislation in the United States. If
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate or a copy thereof to any interested party in
such proceedings.
--------------------------------------
Account Holder
Dated *
- --------------------
* To be dated on or after the 15th day before the Exchange Date.
<PAGE>
EXHIBIT C
[Form of Investment Letter for U.S. Bank Branch]
[Letterhead of U.S. Bank Branch]
[Address of Account-Holder]
Purchase of U.S. $_____________* principal amount of Cetus
Corporation (the "Company") 5 1/4 per cent. Convertible
Subordinated Debentures due 2002 (the "Securities")
-----------------------------------------------------------
[Date]
Dear Sirs,
In connection with our purchase of Securities we confirm that:
1. We are a branch located outside the United States of a bank
organized under federal or state law in the United States, we are a financial
institution as defined in United States Treasury regulation section 1.165-12
(c)(1)(v) we agree to comply with the requirements of section 165(j)(3)(A),
(B) or (C) of the United States Internal Revenue Code of 1986 and the
regulations thereunder, we are not purchasing the Securities for offer to
resell or for resale in the United States and, as a condition of our purchase
of the Securities, we agree to provide or cause to be provided on delivery of
the Securities in definitive form certificates substantially in the form of
Exhibits A and B to the Indenture relating to the Securities and to furnish a
copy of this letter to any person that will provide the certificate in the
form of Exhibit B to the Indenture.
- ------------
* Not less than U.S. $500,000 minimum principal amount.
<PAGE>
C-2
2. We understand that the Securities are not being, and that the
shares of common stock (the "Common Stock") of the Company into which the
Securities are convertible (the "Conversion Shares") may not be, registered
under the United States Securities Act of 1933 (the "1933 Act") and are being
sold to us in a transaction that is exempt from the registration requirements
of the 1933 Act.
3. (a) We have received a copy of the Offering Circular relating to
the Securities, and (b) any information we desire concerning the Securities,
the Common Stock, the Company or any other matter relevant to our decision to
purchase the Securities is or has been made available to us.
4. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment
in the Securities, and we are able to bear the economic risks of investment
in the Securities.
5. We are acquiring the Securities for our own account and not with a
view to any distribution of the Securities or the Conversion Shares, subject,
nevertheless, to the understanding that the disposition of our property shall
at all times be and remain within our control.
6. We agree that in the event that at some future time we wish to
dispose of any of the Securities or the Conversion Shares (such disposition
not being currently foreseen or contemplated), we will not transfer any of
the Securities or Conversion Shares unless:
(A) (1) the sale is to an Eligible Purchaser (as defined below) of at
least U.S. $500,000 principal amount of Securities or market value of
Conversion Shares, as the case may be, (2) a letter to substantially the
same effect as this letter (excluding paragraph 3(a)) is executed
promptly by the purchaser and (3) all offers or solicitations in
connection with the sale, whether directly or through any agent acting
on our behalf, are limited to Eligible Purchasers and are not made by
means of any form of general advertising or solicitation; or
(B) the Securities or Conversion Shares are transferred pursuant to Rule
144 by us after we have held them for more than three years; or
(C) such transfer is a transfer of Securities and is outside the United
States to a non-United
<PAGE>
C-3
States person who represents in writing (i) that it is not purchasing
the Securities for the account of a United States person and that it
will not offer or sell any such Securities directly or indirectly in the
United States or to any United States person, and (ii) if such person is
a dealer in securities, that it will deliver to any person to whom it
sells any such Securities a confirmation containing substantially the
same statement, including this Clause; or
(D) the Securities or Conversion Shares are transferred in any other
transaction that does not require registration under the 1933 Act and we
theretofore have furnished to the Company a satisfactory opinion of
counsel to such effect.
"United States" means the United States of America (including the States
and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction, and "United States person" means any
citizen or resident of the United States, any corporation, partnership or
other entity created or organized in or under the laws of the United States
or any State thereof or any estate or trust the income of which is subject to
United States federal income taxation regardless of its source. "Eligible
Purchaser" means a corporation, partnership or other entity which we have
reasonable grounds to believe and do believe can make representations with
respect to itself to substantially the same effect as the representations set
forth herein.
Very truly yours,
[Name of U.S. Bank Branch]
By
--------------------------------------
<PAGE>
EXHIBIT D
[Form of certificate to be given by SBCI]
CERTIFICATE
CETUS CORPORATION
5 1/4 PER CENT. CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
This is to certify that we have received from a United States
Institutional Investor (as defined in the indenture pursuant to which the
above-captioned Securities of CETUS CORPORATION (the "Company") were issued)
a letter in the form submitted herewith.
We believe that such United States Institutional Investor has such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of the investment, and that it is an
"accredited investor" within the meaning of Regulation D under the United
States Securities Act of 1933.
We understand that this certificate is required in connection with the
United States law. We irrevocably authorize you to produce this certificate
or a copy hereof to any interested party in any administrative or legal
proceedings or official inquiry with respect to the matters covered by this
certificate.
Dated: , 198
SWISS BANK CORPORATION INTERNATIONAL LIMITED
By
----------------------------------
Authorized Officer
<PAGE>
EXHIBIT E
[Form of letter delivered by United States Institutional
Investors, to be attached to the certificate given by SBCI]
CETUS CORPORATION
1400 Fifty-Third Street
Emeryville, California 94608
Swiss Bank Corporation International Limited
Three Keys House
130 Wood Street
London EC2V 6AQ
Re: Purchase of U.S. $______ * principal amount of
Cetus Corporation (the "Company") 5 1/4 per cent.
Convertible Subordinated Debentures due 2002
(the "Securities")
-------------------------------------------------
, 1987
Dear Sirs:
In connection with our purchase of the Securities we confirm that:
1. We understand that the Securities are not being, and that the
shares of common stock (the "Common Stock") of the Company into which the
Securities are convertible (the "Conversion Shares") may not be, registered
under the United States Securities Act of 1933 (the "1933 Act") and that the
Securities are being sold to us in a transaction that is exempt from the
registration requirements of the 1933 Act.
2. (a) We have received a copy of the Offering Circular relating to
the Securities; and (b) any information we desire concerning the Securities,
the Common Stock, the Company thereof or any other matter relevant to our
decision to purchase the Securities is or has been made available to us.
- -------------
* Not less than U.S. $500,000 minimum principal amount.
<PAGE>
E-2
3. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment
in the Securities, and we (and any account for which we are purchasing under
paragraph (iv) below) are able to bear the economic risks of investment in
the Securities.
4. We are acquiring the Securities for our own account and not as a
nominee or agent for any other person (except for accounts as to which we
exercise sole investment discretion) and not with a view to any distribution
of the Securities or the Conversion Shares subject, nevertheless, to the
understanding that the disposition of our property shall at all times be and
remain within our control.
5. We agree that in the event that at some future time we wish to
dispose of any of the Securities or the Conversion Shares (such disposition
not being currently foreseen or contemplated), we will not transfer any of
the Securities or Conversion Shares unless:
(A) (1) the sale is to an Eligible Purchaser (as defined below) of at
least U.S. $500,000 principal amount of Securities or market value of
Conversion Shares, as the case may be, (2) a letter to substantially the
same effect as this letter (excluding paragraph 2(a)) is executed
promptly by the purchaser and (3) all offers or solicitations in
connection with the sale, whether directly or through any agent acting
on our behalf, are limited to Eligible Purchasers and are not made by
means of any form of general solicitation or general advertising
whatsoever;
(B) the Securities or Conversion Shares are transferred pursuant to
Rule 144 by us after we have held them for more than three years; or
(C) the Securities or Conversion Shares are transferred in any
other transaction that does not require registration under the 1933 Act
and we theretofore have furnished to the Company a satisfactory opinion
of counsel to such effect.
6. We understand that the Securities will be deposited with a common
depositary for the Euro-clear Clearance System and CEDEL S.A. in the form of
a temporary global security, that in order to receive definitive Securities
we (or any purchaser from us) will be required to make statements
substantially to the effect contained in this letter, that definitive
Securities will be issued to us (or any purchaser from us) only in registered
form, and
<PAGE>
E-3
that the definitive Securities, and Conversion Shares, will bear a legend
to substantially the following effect (except that such Conversion Shares need
not bear the second legend):
"This Security has not been registered under the United States
Securities Act of 1933 and may not be offered or sold except in
compliance with such Act. The transfer of this Security is subject to
certain restrictions set forth in a letter to Swiss Bank Corporation
International Limited and Cetus Corporation executed by or on behalf of
the holder hereof.
This Security cannot be exchanged for a Bearer Security."
The first paragraph of this legend may be removed upon determination by the
Company that the Security or Conversion Shares, as the case may be, have been
transferred pursuant to Rule 144 under the 1933 Act or if the Company has
received an opinion of counsel satisfactory to it to the effect that such
paragraph may be removed.
"ELIGIBLE PURCHASER" means a corporation, partnership or other entity
which we have reasonable grounds to believe and do believe can make
representations with respect to itself to substantially the same effect as
the representations set forth herein.
Very truly yours,
----------------------------
(NAME OF PURCHASER)
By
--------------------------
AUTHORIZED OFFICER
<PAGE>
Exhibit 10.102
GUARANTY
CHIRON REGARDING CETUS DEBENTURES
THIS GUARANTY (this "Guaranty"), dated as of September 29,
1994, is made by Chiron Corporation, a Delaware corporation (the
"Guarantor"), in favor of Bankers Trust Company, as trustee (the "Trustee"),
for the benefit of the holders (the "Holders") of the 5 1/4% Convertible
Subordinated Debentures due 2000 (the "Debentures") of Cetus Corporation, a
Delaware corporation ("Cetus"), issued pursuant to an Indenture dated as of
May 21, 1987 between Cetus and the Trustee (as amended, the "Indenture").
Cetus has requested that the Guarantor execute and deliver this
Guaranty in favor of the Trustee for the benefit of the Holders and the
Guarantor derives substantial direct and indirect benefits from the
Debentures issued by Cetus to the Holders (which benefits are hereby
acknowledged by the Guarantor).
Accordingly, the Guarantor hereby agrees as follows:
SECTION 1 DEFINITIONS. All capitalized terms used in this
Guaranty and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
SECTION 2 GUARANTY. The Guarantor hereby unconditionally and
irrevocably guarantees to the Trustee, for the benefit of the Holders, and
their respective successors and assigns, the full and prompt payment when due
(whether at stated maturity, by required prepayment, declaration,
acceleration, demand, or otherwise) and performance of the indebtedness,
liabilities and other obligations of Cetus to the Trustee for the benefit of
the Holders under the Indenture and the Debentures. The foregoing
indebtedness, liabilities and other obligations of Cetus, and all other
indebtedness, liabilities and obligations to be paid or performed by the
Guarantor in connection with this Guaranty shall hereinafter be collectively
referred to as the "Guaranteed Obligations."
SECTION 3 LIABILITY OF GUARANTOR. The liability of the
Guarantor under this Guaranty shall be irrevocable, absolute, independent and
unconditional, and shall not be affected by any circumstance which might
constitute a discharge of a surety or guarantor other than the indefeasible
payment and performance in full of all Guaranteed Obligations. In
furtherance of the foregoing and without limiting the generality thereof, the
Guarantor agrees as follows:
(i) the Guarantor's liability hereunder shall be the
immediate, direct, and primary obligation of the Guarantor and shall not be
contingent upon the Trustee's exercise or enforcement of any remedy it may
have against Cetus or any other Person;
1.
<PAGE>
(ii) this Guaranty is a guaranty of payment when due and
not merely of collectibility;
(iii) the Guarantor's payment of a portion, but not all,
of the Guaranteed Obligations shall in no way limit, affect, modify or
abridge the Guarantor's liability for any portion of the Guaranteed
Obligations remaining unsatisfied; and
(iv) the Guarantor's liability with respect to the
Guaranteed Obligations shall remain in full force and effect without regard
to, and shall not be impaired or affected by, nor shall the Guarantor be
exonerated or discharged by, any of the following events:
(A) any insolvency, bankruptcy, reorganization,
arrangement, adjustment, composition, assignment for the benefit of
creditors, liquidation, winding up or dissolution of Cetus or the Guarantor;
(B) any limitation, discharge, or cessation of the
liability of Cetus, the Guarantor, any other guarantor or any other Person
for any Guaranteed Obligations due to any statute, regulation or rule of law,
or any invalidity or unenforceability in whole or in part of any of the
Guaranteed Obligations, the Indenture or the Debentures;
(C) any merger, acquisition, consolidation or change
in structure of Cetus, the Guarantor or any other Person, or any sale, lease,
transfer or other disposition of any or all of the assets or shares of Cetus,
the Guarantor, or any other Person;
(D) any claim, counterclaim or setoff, other than
that of prior performance, that Cetus, the Guarantor, any other guarantor or
other Person may have or assert;
(E) the Trustee's amendment, modification, renewal,
extension or cancellation of the Indenture, the Debentures or any Guaranteed
Obligations;
(F) any assignment or other transfer, in whole or in
part, of the Trustee's interests in and rights under this Guaranty, the
Indenture or the Debentures; and
(G) the Trustee's vote, claim, distribution,
election, or acceptance, in any bankruptcy case related to the Guaranteed
Obligations.
2.
<PAGE>
SECTION 4 CONSENTS OF GUARANTOR. The Guarantor hereby
unconditionally consents and agrees that, without notice to or further assent
from the Guarantor:
(i) the principal amount of the Guaranteed Obligations
may be increased or decreased and additional indebtedness or obligations of
Cetus under the Indenture may be incurred, by one or more amendments,
modifications, renewals or extensions of the Indenture, the Debentures or
otherwise;
(ii) the time, manner, place or terms of any payment under
the Indenture or the Debentures may be extended or changed, including by an
increase or decrease in the interest rate on any Guaranteed Obligation or
other amount payable under the Indenture or the Debentures, by an amendment,
modification or renewal of the Indenture or the Debentures;
(iii) the time for Cetus's performance of or compliance
with any term, covenant or agreement on its part to be performed or observed
under the Indenture may be extended, or such performance or compliance
waived, or failure in or departure from such performance or compliance
consented to, all in such manner and upon such terms as the Trustee may deem
proper;
all without impairing, abridging, or releasing this Guaranty;
(iv) the Trustee may discharge or release, in whole or in
part, any other guarantor or any other Person liable for the payment and
performance of all or any part of the Guaranteed Obligations, may permit or
consent to any such action or any result of such action, and the Trustee
shall not be liable to the Guarantor for any failure to collect or enforce
payment or performance of the Guaranteed Obligations from any Person;
(v) the Trustee may request and accept other guaranties
of the Guaranteed Obligations and any other indebtedness, obligations or
liabilities of Cetus to the Trustee and may, from time to time, in whole or
in part, surrender, release, subordinate, modify, waive, rescind, compromise
or extend any such guaranty and may permit or consent to any such action or
the result of any such action; and
(vi) the Trustee may exercise, or waive or otherwise
refrain from exercising, any other right, remedy, power or privilege granted
by any document or agreement, or otherwise available to the Trustee, with
respect to the Guaranteed Obligations, even if the exercise of such right,
remedy, power or privilege affects or eliminates any right of subrogation or
any other right of the Guarantor against Cetus;
3.
<PAGE>
SECTION 5 GUARANTOR'S WAIVERS.
(a) CERTAIN WAIVERS. The Guarantor waives and agrees not to
assert:
(i) any right to require the Trustee to marshal assets in
favor of Cetus, the Guarantor, any other guarantor or any other Person, to
proceed against Cetus, any other guarantor or any other Person, or to pursue
any other right, remedy, power or privilege of the Trustee whatsoever;
(ii) the defense of the statute of limitations in any
action hereunder or for the collection or performance of the Guaranteed
Obligations;
(iii) any defense arising by reason of any lack of
corporate or other authority;
(iv) any rights to set-offs and counterclaims;
(v) any defense based upon an election of remedies which
destroys or impairs the subrogation rights of the Guarantor or the right of
the Guarantor to proceed against Cetus or any other obligor of the Guaranteed
Obligations for reimbursement; and
(vi) without limiting the generality of the foregoing, to
the fullest extent permitted by law, any defenses or benefits that may be
derived from or afforded by applicable law limiting the liability of or
exonerating guarantors or sureties, or which may conflict with the terms of
this Guaranty.
(b) ADDITIONAL WAIVERS. The Guarantor waives any and all
notice of the acceptance of this Guaranty, and any and all notice of the
creation, renewal, modification, extension or accrual of the Guaranteed
Obligations, or the reliance by the Trustee upon this Guaranty, or the
exercise of any right, power or privilege hereunder. The Guaranteed
Obligations shall conclusively be deemed to have been created, contracted,
incurred and permitted to exist in reliance upon this Guaranty. The Guarantor
waives promptness, diligence, presentment, protest, demand for payment,
notice of default, dishonor or nonpayment and all other notices to or upon
Cetus, the Guarantor or any other Person with respect to the Guaranteed
Obligations.
(c) INDEPENDENT OBLIGATIONS. The obligations of the Guarantor
hereunder are independent of and separate from the obligations of Cetus and
any other guarantor and upon the occurrence and during the continuance of any
Event of Default, a separate action or actions may be brought against the
Guarantor, whether or not Cetus or any such other guarantor is joined therein
or a separate action or actions are brought against Cetus or any such other
guarantor.
4.
<PAGE>
SECTION 6 SUBROGATION.
So long as the Guaranteed Obligations remain unpaid in full,
the Guarantor shall not have, and shall not directly or indirectly exercise,
(i) any rights that it may acquire by way of subrogation under this Guaranty,
by any payment hereunder or otherwise, (ii) any rights of contribution,
indemnification, reimbursement or similar suretyship claims arising out of
this Guaranty or (iii) any other right which it might otherwise have or
acquire (in any way whatsoever) which could entitle it at any time to share
or participate in any right, remedy or security of the Trustee as against
Cetus or other guarantors in connection with this Guaranty, the Indenture or
any of the Debentures. If any amount shall be paid to the Guarantor on
account of the foregoing rights at any time when all the Guaranteed
Obligations shall not have been paid in full, such amount shall be held in
trust for the benefit of the Trustee and shall forthwith be paid to the
Trustee to be credited and applied to the Guaranteed Obligations, whether
matured or unmatured, in accordance with the terms of the Indenture and the
Debentures.
SECTION 7 CONTINUING GUARANTY; REINSTATEMENT.
(a) CONTINUING GUARANTY. This Guaranty is a continuing
guaranty relating to any Guaranteed Obligations, including Guaranteed
Obligations which may exist continuously or which may arise from time to time
under successive transactions, and the Guarantor expressly acknowledges that
this Guaranty shall remain in full force and effect notwithstanding that
there may be periods in which no Guaranteed Obligations exist. This Guaranty
shall continue in effect and be binding upon the Guarantor until actual
receipt by the Trustee of written notice from the Guarantor of its intention
to discontinue this Guaranty as to future transactions (which notice shall
not be effective until noon on the day which is ten days following such
receipt); PROVIDED that no revocation or termination of this Guaranty shall
affect in any way any rights of the Trustee hereunder with respect to any
Guaranteed Obligations arising or outstanding on the date of receipt of such
notice, including any subsequent continuation, extension, or renewal thereof,
or change in the terms or conditions thereof (collectively, "Existing
Guaranteed Obligations"), and the sole effect of such notice shall be to
exclude from this Guaranty Guaranteed Obligations thereafter arising which
are unconnected to any Existing Guaranteed Obligations.
(b) REINSTATEMENT. This Guaranty shall continue to be
effective or shall be reinstated and revived, as the case may be, if, for any
reason, any payment of the Guaranteed Obligations by or on behalf of Cetus
shall be rescinded, invalidated, declared to be fraudulent or preferential,
set aside, voided or otherwise required to be repaid to Cetus, its estate,
trustee, receiver or any other Person, or must otherwise be restored by the
Trustee, whether as a result of proceedings in bankruptcy or reorganization
or otherwise. To the extent any payment is so rescinded, set aside, voided
5.
<PAGE>
or otherwise repaid or restored, the Guaranteed Obligations shall be revived
in full force and effect without reduction or discharge for such payment.
SECTION 8 PAYMENTS. The Guarantor hereby agrees, in furtherance
of the foregoing provisions of this Guaranty and not in limitation of any
other right which the Trustee or any other Person may have against the
Guarantor by virtue hereof, upon the failure of Cetus to pay any of the
Guaranteed Obligations when and as the same shall become due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of
the automatic stay under Section 362(a) of Title 11 of the United States
Bankruptcy Code, as amended), the Guarantor shall forthwith pay, or cause to
be paid, in cash, to the Trustee an amount equal to the amount of the
Guaranteed Obligations then due as aforesaid (including interest which, but
for the filing of a petition in bankruptcy with respect to Cetus, would have
accrued on such Guaranteed Obligations, whether or not a claim is allowed
against Cetus for such interest in any such bankruptcy proceeding). The
Guarantor shall make each payment hereunder, unconditionally in full without
set-off or counterclaim, or deduction for any taxes, on the day when due, to
the Trustee at such office of the Trustee and to such account as the Trustee
shall request.
SECTION 9 GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 10 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) ENTIRE AGREEMENT. This Guaranty constitutes the entire
agreement of the Guarantor with respect to the matters set forth herein and
supersedes any prior agreements, commitments, drafts, communications,
discussions and understandings, oral or written, with respect thereto.
(b) AMENDMENTS. This Guaranty may not be amended except by a
writing signed by the Guarantor.
SECTION 11 SEVERABILITY. Whenever possible, each provision of
this Guaranty shall be interpreted in such manner as to be effective and
valid under all applicable laws and regulations. If, however, any provision
of this Guaranty shall be prohibited by or invalid under any such law or
regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation,
or, if for any reason it is not deemed so modified, it shall be ineffective
and invalid only to the extent of such prohibition or invalidity without
affecting the remaining provisions of this Guaranty, or the validity or
effectiveness of such provision in any other jurisdiction.
6.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty,
as of the date first above written.
CHIRON CORPORATION
By: /s/ Dennis L. Winger
---------------------------
Title: Senior V.P. & CFO
Address:
1400 Fifty-Third Street
Emeryville, California 94608
Attn: Chief Financial Officer
Fax No.: (510) 601-3343
7.
<PAGE>
Exhibit 10.103
GUARANTY
CETUS REGARDING CHIRON NOTES
THIS GUARANTY (this "Guaranty"), dated as of September 29,
1994, is made by Cetus Corporation, a Delaware corporation (the "Guarantor"),
in favor of The First National Bank of Boston, as trustee (the "Trustee"),
for the benefit of the holders (the "Holders") of the 1.90% Convertible
Subordinated Notes due 2000 (the "Notes") of Chiron Corporation, a Delaware
corporation ("Chiron"), issued pursuant to an Indenture dated as of November
15, 1993 between Chiron and the Trustee (as amended, the "Indenture").
Chiron has requested that the Guarantor execute and deliver
this Guaranty in favor of the Trustee for the benefit of the Holders and the
Guarantor derives substantial direct and indirect benefits from the Notes
issued by Chiron to the Holders (which benefits are hereby acknowledged by
the Guarantor).
Accordingly, the Guarantor hereby agrees as follows:
SECTION 1 DEFINITIONS. All capitalized terms used in this
Guaranty and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
SECTION 2 GUARANTY. The Guarantor hereby unconditionally and
irrevocably guarantees to the Trustee, for the benefit of the Holders, and
their respective successors and assigns, the full and prompt payment when due
(whether at stated maturity, by required prepayment, declaration,
acceleration, demand, or otherwise) and performance of the indebtedness,
liabilities and other obligations of Chiron to the Trustee for the benefit of
the Holders under the Indenture and the Notes. The foregoing indebtedness,
liabilities and other obligations of Chiron, and all other indebtedness,
liabilities and obligations to be paid or performed by the Guarantor in
connection with this Guaranty shall hereinafter be collectively referred to
as the "Guaranteed Obligations."
SECTION 3 LIABILITY OF GUARANTOR. The liability of the
Guarantor under this Guaranty shall be irrevocable, absolute, independent and
unconditional, and shall not be affected by any circumstance which might
constitute a discharge of a surety or guarantor other than the indefeasible
payment and performance in full of all Guaranteed Obligations. In furtherance
of the foregoing and without limiting the generality thereof, the Guarantor
agrees as follows:
(i) The Guarantor's liability hereunder shall be the
immediate, direct, and primary obligation of the Guarantor and shall not be
contingent upon the Trustee's exercise or enforcement of any remedy it may
have against Chiron or any other Person;
1.
<PAGE>
(ii) this Guaranty is a guaranty of payment when due and
not merely of collectibility;
(iii) the Guarantor's payment of a portion, but not all,
of the Guaranteed Obligations shall in no way limit, affect, modify or
abridge the Guarantor's liability for any portion of the Guaranteed
Obligations remaining unsatisfied; and
(iv) the Guarantor's liability with respect to the
Guaranteed Obligations shall remain in full force and effect without regard
to, and shall not be impaired or affected by, nor shall the Guarantor be
exonerated or discharged by, any of the following events:
(A) any insolvency, bankruptcy, reorganization,
arrangement, adjustment, composition, assignment for the benefit of
creditors, liquidation, winding up or dissolution of Chiron or the Guarantor;
(B) any limitation, discharge, or cessation of the
liability of Chiron, the Guarantor, any other guarantor or any other Person
for any Guaranteed Obligations due to any statute, regulation or rule of law,
or any invalidity or unenforceability in whole or in part of any of the
Guaranteed Obligations, the Indenture or the Notes;
(C) any merger, acquisition, consolidation or change
in structure of Chiron, the Guarantor or any other Person, or any sale,
lease, transfer or other disposition of any or all of the assets or shares of
Chiron, the Guarantor, or any other Person;
(D) any claim, counterclaim or setoff, other than
that of prior performance, that Chiron, the Guarantor, any other guarantor or
other Person may have or assert;
(E) the Trustee's amendment, modification, renewal,
extension or cancellation of the Indenture, the Notes or any Guaranteed
Obligations;
(F) any assignment or other transfer, in whole or in
part, of the Trustee's interests in and rights under this Guaranty, the
Indenture or the Notes; and
(G) the Trustee's vote, claim, distribution,
election, or acceptance, in any bankruptcy case related to the Guaranteed
Obligations.
SECTION 4 CONSENTS OF GUARANTOR. The Guarantor hereby
unconditionally consents and agrees that, without notice to or further assent
from the Guarantor:
2.
<PAGE>
(i) the principal amount of the Guaranteed Obligations
may be increased or decreased and additional indebtedness or obligations of
Chiron under the Indenture may be incurred, by one or more amendments,
modifications, renewals or extensions of the Indenture, the Notes or
otherwise;
(ii) the time, manner, place or terms of any payment
under the Indenture or the Notes may be extended or changed, including by an
increase or decrease in the interest rate on any Guaranteed Obligation or
other amount payable under the Indenture or the Notes, by an amendment,
modification or renewal of the Indenture or the Notes;
(iii) the time for Chiron's performance of or compliance
with any term, covenant or agreement on its part to be performed or observed
under the Indenture may be extended, or such performance or compliance
waived, or failure in or departure from such performance or compliance
consented to, all in such manner and upon such terms as the Trustee may deem
proper;
all without impairing, abridging, or releasing this Guaranty;
(iv) the Trustee may discharge or release, in whole or in
part, any other guarantor or any other Person liable for the payment and
performance of all or any part of the Guaranteed Obligations, may permit or
consent to any such action or any result of such action, and the Trustee
shall not be liable to the Guarantor for any failure to collect or enforce
payment or performance of the Guaranteed Obligations from any Person;
(v) the Trustee may request and accept other guaranties
of the Guaranteed Obligations and any other indebtedness, obligations or
liabilities of Chiron to the Trustee and may, from time to time, in whole or
in part, surrender, release, subordinate, modify, waive, rescind, compromise
or extend any such guaranty and may permit or consent to any such action or
the result of any such action; and
(vi) the Trustee may exercise, or waive or otherwise
refrain from exercising, any other right, remedy, power or privilege granted
by any document or agreement, or otherwise available to the Trustee, with
respect to the Guaranteed Obligations, even if the exercise of such right,
remedy, power or privilege affects or eliminates any right of subrogation or
any other right of the Guarantor against Chiron;
SECTION 5 GUARANTOR'S WAIVERS.
(a) CERTAIN WAIVERS. The Guarantor waives and agrees not to
assert:
(i) any right to require the Trustee to marshal assets
in favor of Chiron, the Guarantor, any other guarantor or any other Person,
to proceed against
3.
<PAGE>
Chiron, any other guarantor or any other Person, or to pursue any other
right, remedy, power or privilege of the Trustee whatsoever;
(ii) the defense of the statute of limitations in any
action hereunder or for the collection or performance of the Guaranteed
Obligations;
(iii) any defense arising by reason of any lack of
corporate or other authority;
(iv) any rights to set-offs and counterclaims;
(v) any defense based upon an election of remedies which
destroys or impairs the subrogation rights of the Guarantor or the right of
the Guarantor to proceed against Chiron or any other obligor of the
Guaranteed Obligations for reimbursement; and
(vi) without limiting the generality of the foregoing, to
the fullest extent permitted by law, any defenses or benefits that may be
derived from or afforded by applicable law limiting the liability of or
exonerating guarantors or sureties, or which may conflict with the terms of
this Guaranty.
(b) ADDITIONAL WAIVERS. The Guarantor waives any and all
notice of the acceptance of this Guaranty, and any and all notice of the
creation, renewal, modification, extension or accrual of the Guaranteed
Obligations, or the reliance by the Trustee upon this Guaranty, or the
exercise of any right, power or privilege hereunder. The Guaranteed
Obligations shall conclusively be deemed to have been created, contracted,
incurred and permitted to exist in reliance upon this Guaranty. The Guarantor
waives promptness, diligence, presentment, protest, demand for payment,
notice of default, dishonor or nonpayment and all other notices to or upon
Chiron, the Guarantor or any other Person with respect to the Guaranteed
Obligations.
(c) INDEPENDENT OBLIGATIONS. The obligations of the Guarantor
hereunder are independent of and separate from the obligations of Chiron and
any other guarantor and upon the occurrence and during the continuance of any
Event of Default, a separate action or actions may be brought against the
Guarantor, whether or not Chiron or any such other guarantor is joined
therein or a separate action or actions are brought against Chiron or any
such other guarantor.
SECTION 6 SUBROGATION.
So long as the Guaranteed Obligations remain unpaid in full,
the Guarantor shall not have, and shall not directly or indirectly exercise,
(i) any rights that it may acquire by way of subrogation under this Guaranty,
by any payment hereunder or otherwise, (ii) any rights of contribution,
indemnification, reimbursement or similar
4.
<PAGE>
suretyship claims arising out of this Guaranty or (iii) any other right which
it might otherwise have or acquire (in any way whatsoever) which could
entitle it at any time to share or participate in any right, remedy or
security of the Trustee as against Chiron or other guarantors in connection
with this Guaranty, the Indenture or any of the Notes. If any amount shall be
paid to the Guarantor on account of the foregoing rights at any time when all
the Guaranteed Obligations shall not have been paid in full, such amount
shall be held in trust for the benefit of the Trustee and shall forthwith be
paid to the Trustee to be credited and applied to the Guaranteed Obligations,
whether matured or unmatured, in accordance with the terms of the Indenture
and the Notes.
SECTION 7 CONTINUING GUARANTY; REINSTATEMENT.
(a) CONTINUING GUARANTY. This Guaranty is a continuing
guaranty relating to any Guaranteed Obligations, including Guaranteed
Obligations which may exist continuously or which may arise from time to time
under successive transactions, and the Guarantor expressly acknowledges that
this Guaranty shall remain in full force and effect notwithstanding that
there may be periods in which no Guaranteed Obligations exist. This Guaranty
shall continue in effect and be binding upon the Guarantor until actual
receipt by the Trustee of written notice from the Guarantor of its intention
to discontinue this Guaranty as to future transactions (which notice shall
not be effective until noon on the day which is ten days following such
receipt); PROVIDED that no revocation or termination of this Guaranty shall
affect in any way any rights of the Trustee hereunder with respect to any
Guaranteed Obligations arising or outstanding on the date of receipt of such
notice, including any subsequent continuation, extension, or renewal thereof,
or change in the terms or conditions thereof (collectively, "Existing
Guaranteed Obligations"), and the sole effect of such notice shall be to
exclude from this Guaranty Guaranteed Obligations thereafter arising which
are unconnected to any Existing Guaranteed Obligations.
(b) REINSTATEMENT. This Guaranty shall continue to be effective
or shall be reinstated and revived, as the case may be, if, for any reason,
any payment of the Guaranteed Obligations by or on behalf of Chiron shall be
rescinded, invalidated, declared to be fraudulent or preferential, set aside,
voided or otherwise required to be repaid to Chiron, its estate, trustee,
receiver or any other Person, or must otherwise be restored by the Trustee,
whether as a result of proceedings in bankruptcy or reorganization or
otherwise. To the extent any payment is so rescinded, set aside, voided or
otherwise repaid or restored, the Guaranteed Obligations shall be revived in
full force and effect without reduction or discharge for such payment.
SECTION 8 PAYMENTS. The Guarantor hereby agrees, in furtherance
of the foregoing provisions of this Guaranty and not in limitation of any
other right which the Trustee or any other Person may have against the
Guarantor by virtue hereof, upon the failure of Chiron to pay any of the
Guaranteed Obligations when and as the same shall become due, whether at
stated maturity, by required prepayment, declaration,
5.
<PAGE>
acceleration, demand or otherwise (including amounts that would become due
but for the operation of the automatic stay under Section 362(a) of Title 11
of the United States Bankruptcy Code, as amended), the Guarantor shall
forthwith pay, or cause to be paid, in cash, to the Trustee an amount equal
to the amount of the Guaranteed Obligations then due as aforesaid (including
interest which, but for the filing of a petition in bankruptcy with respect
to Chiron, would have accrued on such Guaranteed Obligations, whether or not
a claim is allowed against Chiron for such interest in any such bankruptcy
proceeding). The Guarantor shall make each payment hereunder, unconditionally
in full without set-off or counterclaim, or deduction for any taxes, on the
day when due, to the Trustee at such office of the Trustee and to such
account as the Trustee shall request.
SECTION 9 GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 10 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) ENTIRE AGREEMENT. This Guaranty constitutes the entire
agreement of the Guarantor with respect to the matters set forth herein and
supersedes any prior agreements, commitments, drafts, communications,
discussions and understandings, oral or written, with respect thereto.
(b) AMENDMENTS. This Guaranty may not be amended except by a
writing signed by the Guarantor.
SECTION 11 SEVERABILITY. Whenever possible, each provision of
this Guaranty shall be interpreted in such manner as to be effective and
valid under all applicable laws and regulations. If, however, any provision
of this Guaranty shall be prohibited by or invalid under any such law or
regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation,
or, if for any reason it is not deemed so modified, it shall be ineffective
and invalid only to the extent of such prohibition or invalidity without
affecting the remaining provisions of this Guaranty, or the validity or
effectiveness of such provision in any other jurisdiction.
6.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty,
as of the date first above written.
CETUS CORPORATION
By: Dennis L. Winger
---------------------------
Title: Sr. V.P. & CFO
Address:
1400 Fifty-Third Street
Emeryville, California 94608
Attn: Chief Financial Officer
Fax No.: (510) 601-3343
7.
<PAGE>
Exhibit 10.104
[Execution Copy]
STOCK PURCHASE AND WARRANT AGREEMENT
between
CETUS CORPORATION
and
HOFFMANN-LA ROCHE INC.
dated
May 9, 1989
<PAGE>
STOCK PURCHASE AND WARRANT AGREEMENT
THIS IS A STOCK PURCHASE AND WARRANT AGREEMENT ("Agreement") dated May
9, 1989 between CETUS CORPORATION, a Delaware corporation ("Seller"), and
HOFFMANN-LA ROCHE INC., a New Jersey corporation ("Purchaser").
B A C K G R 0 U N D
Seller and Purchaser are parties to a letter agreement captioned
"Agreement on Interleukin-2 Patent Licensing" (the "Letter Agreement"), dated
December 21, 1988, pursuant to which, among other things, (i) Seller agreed
to sell to Purchaser, and Purchaser agreed to purchase from Seller, 950,000
shares of Seller's common stock, (ii) Seller agreed to issue to Purchaser
warrants to purchase an additional 1,000,000 shares of Seller's common stock,
and (iii) Seller and Purchaser agreed to cooperate in preparing and executing
an agreement or agreements (the "Follow-Up Agreements") more fully
elaborating the parties' understandings set forth in the Letter Agreement.
This Agreement is the Follow-Up Agreement relating to the stock purchase,
warrant issuance and related securities matters. Two other Follow-Up
Agreements, which
<PAGE>
are being prepared for execution by the parties, are an IL-2 License
Agreement between Seller and Purchaser, and an IL-2 License Agreement between
Seller, EuroCetus International, N.V. and F. Hoffmann-LaRoche & Co. Limited
Company (collectively, the "License Agreements").
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms have the meanings given
them in this Article 1:
"Closing" means the delivery by the parties of the documents necessary
to consummate the sale and purchase of the Shares and the issuance of the
Warrants, at the time and place specified in Section 2.3 of this Agreement.
"Common Stock" means the Common Stock, par value $.01, of Seller, and
does not mean and shall not be deemed to include Series B Common Stock.
"Control", "controls", "controlling" and "controlled" mean the
ownership, directly or indirectly, of stock or similar equity interests
possessing 50% or more of the voting power of a
-2-
<PAGE>
corporation or other entity or the possession, by contract or otherwise, of
the power to direct or cause the direction of the management and policies of
a corporation or other entity.
"Exercise Price" has the meaning given it in Section 3.2 of this
Agreement.
"First Warrant" and "Second Warrant" mean the Warrants issued by
Purchaser to Seller pursuant to Section 3.1 of this Agreement and represented
by the certificates attached to this Agreement as EXHIBITS A and B,
respectively.
"Investor Entity" means Purchaser and every Person which, at the
relevant time, controls, is controlled by or is under common control with,
Purchaser.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"Market Price" of the Common Stock for the relevant day shall be an
amount per share of Common Stock determined as follows:
(a) if the Common Stock is listed on any national securities
exchanges the Market Price shall be the average of the closing prices of the
Common Stock on the principal exchange on
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which the Common Stock is listed for 30 consecutive trading days commencing
45 days before the applicable day; or
(b) if the Common Stock is reported on the National Market System
of the National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the Market Price shall be the average of the last sale prices of
the Common Stock as reported on the NASDAQ National Market System, or, if the
Common Stock is not included in the NASDAQ National Market System, the
average of the bid prices for the Common Stock as reported on the NASDAQ
quotation system, in either case for 30 consecutive trading days commencing
45 days before the applicable day; or
(c) if the Common Stock is not so quoted on NASDAQ or listed on a
national securities exchange or admitted to unlisted trading privileges, the
Market Price shall be an amount representing the fair market value of the
shares of Common Stock as determined in good faith by the Board of Directors
of the Company.
"Net Cetus IL-2 Product Sales" means the aggregate worldwide "Net
Sales" by Seller and its affiliates for "Licensed Cetus IL-2 Product" under
the License Agreements as ultimately agreed upon, executed and delivered, or,
if such agreements are not executed and delivered by December 31, 1989, as
determined pursuant to paragraph 12 of the Letter Agreement.
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"Permitted Transferee" has the meaning given it in Section 8.5 of
this Agreement.
"Person" means any individual, partnership, corporation, trust,
unincorporated association, joint venture, group (as such term is defined in
Section 13(d)(3) of the 1934 Act), government, government agency, or any other
entity or enterprise.
"Prime Rate" means the rate of interest reported as the "Prime
Rate" in the "Money Rates" or successor feature of THE WALL STREET JOURNAL.
"Registration" has the meaning given it in Section 6.1 of
this Agreement.
"Rights" means any securities or other rights, whether issued by
Seller, granted by contract with Seller or any Person, or obtained in any other
manner, which may be converted into or exchanged for, or which otherwise
entitles their holder to acquire, any Voting Stock, and regardless, in each such
case, of when their holder may convert, exchange or exercise such securities or
rights. The Warrants issued to Purchaser under Article 3 of this Agreement are
"Rights".
"SEC" means the Securities and Exchange Commission.
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"Securities" means the Shares, the Warrants and the Warrant Shares.
"Seller Subsidiary" means the entities identified on Exhibit 22 to
Seller's Annual Report on Form 10-K for the fiscal year ended June 30, 1988.
"Shares" means the 950,000 previously unissued shares of Seller's Common
Stock to be sold by Seller to Purchaser pursuant to Section 2.1 of this
Agreement.
"Stockholder Rights Agreement" means the Rights Agreement, dated as of
August 12, 1988, between Seller and The First National Bank of Boston, as
Rights Agent. "Stockholder Rights" means the "Rights" as defined in the
Stockholder Rights Agreement.
"Tender Date" has the meaning given it in Section 9.2 of this Agreement.
"Tender Offer" has the meaning given it under Section 14(d)(1) of the
1934 Act.
"Total Voting Power" means the aggregate Voting Power of all Voting
Stock plus the Voting Stock which all Investor Entities (or, in the case of
the second and fourth sentences of Section 8.2,
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the Person or Persons referred to in those sentences) beneficially own
in the aggregate or are entitled at any time to acquire pursuant to any
Rights.
"Transfer", "Transfers" and "Transferred" mean any sale, assignment,
pledge, hypothecation, gift, transfer or other disposition of Shares,
Warrants or Warrant Shares.
"Voting Power" of any Voting Stock means the number of votes which the
holder of such Voting Stock is, at the time of determination, entitled to
cast for the directors of Seller at a meeting of Seller's stockholders, and
"Voting Power" of any Rights means the number of such votes which the holder
of those Rights would be entitled so to cast if those Rights were converted
into or exchanged or exercised for Voting Stock.
"Voting Stock" means the outstanding shares of capital stock and any
other securities issued by Seller having the present, ordinary power to vote
in the election of directors of Seller, but not securities having such power
only upon the happening of a contingency. The Shares, and the Warrant Shares
when and if issued to Purchaser upon exercise of the Warrants, are "Voting
Stock".
"Warrant" and "Warrants" mean the warrants to purchase an aggregate of
1,000,000 shares of Seller's Common Stock to be issued by Seller to Purchaser
pursuant to Section 3.1 of this Agreement.
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"Warrantholder" and "Warrantholders" mean holders of the Warrants,
including Purchaser and any transferee or transferees of Purchaser pursuant
to a Transfer of a Warrant or Warrants under Section 3.6 of this Agreement.
"Warrant Shares" means the shares of Common Stock issuable by
Seller upon exercise of a Warrant.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
ARTICLE 2
SALE AND PURCHASE OF STOCK
2.1 SALE AND PURCHASE. Subject to the provisions of this Agreement,
Seller hereby issues and sells to Purchaser, and Purchaser hereby purchases
from Seller, the Shares.
2.2 PURCHASE PRICE. Concurrently with the execution and delivery of
this Agreement, Purchaser is delivering to Seller, by wire transfer in
immediately available funds, the sum of $14,250,000, representing the total
purchase price for the Shares based on a purchase price of $15.00 for each
Share, plus the sum of $262,437.50, representing interest (computed on the
basis of a 360-day year of 12 30-day months) on such amount computed at an
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annual rate of 9.75% from March 1, 1989 to the date of this Agreement.
Concurrently with the execution and delivery of this Agreement, Seller is
delivering to Purchaser a certificate representing the Shares registered in
the name of Purchaser.
2.3 CLOSING. The Closing shall take place upon the execution and
delivery of this Agreement at the offices of Seller at 1400 Fifty-Third Street,
Emeryville, California, on the date of this Agreement.
ARTICLE 3
ISSUANCE AND EXERCISE OF WARRANTS
3.1 ISSUANCE OF WARRANTS. Subject to the provisions of this Agreement,
Seller hereby issues to Purchaser the First Warrant and the Second Warrant.
(The First Warrant and the Second Warrant are sometimes referred to
individually as a Warrant and collectively as the Warrants.) Certificates
representing the Warrants (the forms of which certificates are attached to
this Agreement as EXHIBITS A and B, respectively) are being delivered by
Seller to Purchaser concurrently with the execution and delivery of this
Agreement. Each Warrant entitles Purchaser to purchase, at the Exercise Price
and on the terms and conditions contained in this Agreement, 500,000 Warrant
Shares, subject to adjustment from time to time pursuant to Section 3.5 of
this Agreement.
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3.2 EXERCISE PRICE The exercise price of each Warrant is $15.75 per
Warrant Share payable in cash, as may be adjusted in accordance with Section
3.5 of this Agreement.
3.3 EXERCISE OF WARRANTS
(a) FIRST WARRANT. The First Warrant may be exercised no earlier
than August 10, 1989 and no later than the earlier of (i) August 10, 1999, or
(ii) the date which is 16 months after the last day of the first fiscal year,
if any, of Seller in which Net Cetus IL-2 Product Sales exceeded $50,000,000.
The First Warrant may be exercised for the entire balance of the Warrant
Shares at the time of the exercise or in increments of not less than 50,000
Warrant Shares.
(b) SECOND WARRANT. The Second Warrant shall be exercisable as
described in this Section 3.3(b). Within 60 days after the end of each fiscal
year, Seller shall deliver a notice to Purchaser advising Purchaser as to
whether or not Net Cetus IL-2 Product Sales in that year exceeded
$50,000,000. The Second Warrant shall be exercisable for a period of five
years commencing on the date of delivery of the first notice that Net Cetus
IL-2 Product Sales exceeded $50,000,000 for the preceding fiscal year, and
shall expire if not exercised within that five-year period; provided,
however, that if Seller determines that Net Cetus IL-2 Product Sales for a
year exceed $50,000,000 before the end of that
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year, Seller shall provide prompt notice thereof to Purchaser, and the
five-year exercise period shall commence on the date of delivery of that notice;
and provided further, however, that if Net Cetus IL-2 Product Sales do not
exceed $50,000,000 in any fiscal year ending before July 1, 1998 and the Second
Warrant has not therefore become exercisable as provided in this Section 3.3(b),
the Second Warrant will be exercisable for a ten-day period beginning December
21, 1998 and ending December 31, 1998 at the Exercise Price and, if not so
exercised in that ten-day period, will expire. Seller's obligation to provide
the notice contemplated by this Section 3.3(b) shall terminate as to all
subsequent years with the notice given after the first fiscal year in which Net
Cetus IL-2 Product Sales exceeded $50,000,000. The Second Warrant may be
exercised for the entire balance of the Warrant Shares at the time of the
exercise or in increments of not less than 50,000 shares.
(c) SALES INFORMATION.
(i) The amount of Net Cetus IL-2 Product Sales for any fiscal
year as finally determined in accordance with the License Agreements or
paragraph 12 of the Letter Agreement, as the case may be, shall be conclusive
for purposes of determining the exercisability of the Warrants under this
Agreement. If, by reason of changes in Seller's fiscal year or otherwise, the
reports of Net Cetus IL-2 Product Sales provided under the License Agreements
or
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paragraph 12 of the Letter Agreement, as the case may be, do not, when
appropriately combined, cover the fiscal year of Seller, Seller will deliver to
Purchaser such additional reports as are appropriate so that fiscal year
information is available to Purchaser.
(ii) Within 60 days after the end of a fiscal year, Seller
will notify the Warrantholders at the addresses supplied by them as to
whether Net Cetus IL-2 Product Sales for that year exceeded $50,000,000;
provided, however, that if Seller determines that Net Cetus IL-2 Product
Sales for a year exceed $50,000,000 before the end of that year, Seller shall
promptly provide notice thereof to the Warrantholders, and the five year
exercise period shall commence on the date of delivery of that notice. If the
Warrants have been transferred in accordance with Section 3.6 to any Person
other than an Investor Entity, and Seller has not so notified such transferee
Warrantholder or Warrantholders that Net Cetus IL-2 Product Sales exceeded
$50,000,000, Seller shall, upon written request of a transferee
Warrantholder, make available to a single independent accounting firm
selected by such transferee Warrantholder (or jointly selected if there are
multiple transferee Warrantholders), on an annual, one-inspection-per-year
basis, at Seller's offices, such records relating to the preceding fiscal
year as may be relevant and necessary for such accounting firm to confirm
whether Net Cetus IL-2 Product Sales for that year exceeded $50,000,000. Such
independent accounting firm shall be
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entitled to notify the transferee Warrantholders whether, in its opinion
based upon such review, Net Cetus IL-2 Product Sales for that year did or did
not exceed $50,000,000, but shall not be entitled to disclose or retain any
other information (including, without limitation, the actual amount of Net
Cetus IL-2 Product Sales for that or any year) it may have obtained in the
course of such review. Seller's obligation to provide the notice and
inspection rights contemplated by this Section 3.3(c)(ii) shall terminate
either with the notice given after the end of the first fiscal year of Seller
in which Net Cetus IL-2 Product Sales exceeds $50,000,000 or with the notice
given or, in the case of inspection rights, one year after the expiration of
any 60-day notice period, as the case may be, after the last fiscal year of
Seller ending before July 1, 1998, whichever occurs first.
(d) EXERCISE PROCEDURES
(i) An exercisable Warrant may be exercised by delivery to
Seller of a duly executed irrevocable election to purchase (in the form
attached to the warrant certificate) and, at the time specified in Section
3.3(d)(ii) of this Agreement, by payment of the Exercise Price. The purchase
and sale of Warrant Shares pursuant to the exercise of a Warrant shall take
place on the third business day following the receipt or expiration, as the
case may be, of all required governmental and third-party approvals and
waiting periods, including, without limitation, applicable
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stock exchange listing requirements and expiration or early termination of
all waiting periods imposed on such purchase and sale by the HSR Act, or, if
no such approvals are required or waiting periods are applicable, on the
tenth business day, in each case after delivery to Seller of the election to
purchase, or at such other time and place as Seller and Purchaser may agree.
Upon receipt of an election to purchase, Seller and Purchaser will use their
best efforts to comply with all federal and state laws and regulations and
stock exchange listing requirements applicable to any purchase and sale of
Warrant Shares, and Seller shall be obligated to issue and deliver the
appropriate number of Warrant Shares against payment, regardless of whether
the exercise period for the underlying Warrant expires prior to actual
issuance of the Warrant Shares; provided, however, that the issuance of such
Warrant Shares shall be subject to compliance with applicable laws and
regulations and requirements of any applicable stock exchange and the absence
of any order enjoining or restraining such exercising or issuance. Seller
shall use its best efforts to maintain the listing of all the Warrant Shares
on any stock exchange or trading facility on which Common Stock is at the
time listed or traded and shall take actions reasonably necessary or
appropriate to maintain compliance with applicable federal and state laws and
regulations so to permit the immediate issuance of the Warrant Shares upon
the exercise of the Warrants, except those laws and regulations which can
only be complied with upon notice of or after the time of an exercise.
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(ii) At the time of a purchase and sale of Warrant Shares, a
Warrantholder shall present and surrender to Seller the appropriate warrant
certificate and shall make payment, in cash or by wire transfer or by check
payable in immediately available funds to the order of Seller, of the
Exercise Price for the number of Warrant Shares specified in the election to
purchase, and Seller shall deliver to the Warrantholder a certificate
representing the Warrant Shares, registered in the name of that
Warrantholder. If a Warrant is exercised for less than the total number of
shares evidenced by the Warrant, Seller shall execute and deliver a new
warrant certificate, dated the date hereof, evidencing the rights of that
Warrantholder to purchase the balance of the Warrant Shares purchasable under
that Warrant.
3.4 NO RIGHTS AS STOCKHOLDER. The Warrants shall not entitle a
Warrantholder to any rights as a stockholder of Seller, either at law or in
equity. The rights of Warrantholders with respect to the Warrants are limited
to those expressed in this Agreement and in the certificates representing the
Warrants.
3.5 ADJUSTMENTS IN NUMBER AND EXERCISE PRICES OF WARRANT SHARES
(a) ADJUSTMENTS. The number of Warrant Shares and the Exercise
Price therefor shall be subject to adjustment as follows:
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(i) If Seller (A) pays a dividend or makes a distribution on
its Common Stock in shares of its Common Stock; (B) subdivides its
outstanding shares of Common Stock into a greater number of shares; (C)
combines its outstanding shares of Common Stock into a smaller number of
shares; (D) makes a distribution on its Common Stock in shares of its capital
stock other than Common Stock; or (E) issues by reclassification of its
Common Stock any shares of its capital stock, the number of Warrant Shares
for which the Warrants may be exercised and the Exercise Price shall be
adjusted so that a Warrantholder may receive the number and kind of shares of
capital stock of Seller upon exercise after the record date for such event
(assuming, solely for that purpose, that the Warrants were then exercisable)
which such Warrantholder would have received had it exercised a Warrant or
Warrants immediately before that record date (making the same assumption).
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
(ii) If Seller distributes any rights or warrants to all
holders of the Common Stock entitling them for a period expiring within 60
days after the record date referred to below to purchase shares of Common
Stock at a price per share less than the Market Price per share determined as
of that record date,
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the Exercise Price shall be adjusted in accordance with the formula:
N x P
-----
O + M
E' = E x ---------
O + N
WHERE:
E' = the adjusted Exercise Price
E = the current Exercise Price
O = the number of shares of Common Stock outstanding on the record date
N = the number of additional shares of Common Stock offered
M = the Market Price determined as of the record date
P = the offering price per share of the additional shares
The adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive the rights or warrants.
This Section 3.5(a)(ii) does not apply to any Stockholder Rights issued or
issuable under the Stockholder Rights Agreement or any successor or
additional stockholder rights plan.
(iii) If Seller distributes to all holders of its Common
Stock any of its assets or debt securities or any rights or warrants to
purchase securities of Seller (other than the rights and warrants referred to
in Section 3.5(a)(ii) or any Stockholder Rights issued or issuable under the
Stockholder Rights Agreement or
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any successor or additional stockholder rights plan), the Exercise Price shall
be adjusted in accordance with the formula:
M-F
E' = E x ----
M
WHERE:
E' = the adjusted Exercise Price
E = the current Exercise Price
M = the Market Price determined as of the record date
F = the fair market value, as determined in good faith by Seller, on
the record date of the assets, debt securities, rights or warrants
distributed with respect to one share of Common Stock
The adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution. This
Section 3.5(a)(iii) does not apply to cash dividends or cash distributions
cumulatively not in excess of cumulative consolidated earnings (net of Seller's
consolidated losses) from and after July 1, 1988 as shown on the books of
Seller.
(iv) No adjustment in the Exercise Price need be made unless the
adjustment would require an increase or decrease of at least .5% in the Exercise
Price. Any adjustments that are not made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
3.5 shall be made to the nearest cent or to that nearest 1/100th of a share, as
the
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case may be. No adjustment need be made for rights to purchase Common Stock
pursuant to a plan of Seller for reinvestment of dividends or interest. No
adjustment need be made for a change in the par value or no par value of the
Common Stock. To the extent the Warrants become convertible into cash
pursuant to Section 3.5(b), no adjustment need be made thereafter as to the
cash, and interest will not accrue on cash.
(b) MERGER, SALE OF ASSETS, ETC. If a consolidation or merger
of Seller with another corporation or any sale of all or substantially all of
Seller's assets to another Person is consummated in which holders of Common
Stock receive, in exchange for their shares of Common Stock, other securities
or assets, then, as a condition to the closing of such consolidation, merger,
or sale, provision shall be made whereby the Warrantholders shall have the
right to purchase and receive upon the basis and upon the terms and
conditions specified in the Warrants, including those relating to whether and
when the Warrants are exercisable, and in lieu of the Warrant Shares issuable
upon exercise of the Warrants, such securities or assets as may be issued or
payable with respect to or in exchange for the number of Warrant Shares
otherwise issuable upon the exercise of the Warrants prior to the closing of
such consolidation, merger or sale. Appropriate provision shall also be made
with respect to the rights and interests of the Warrantholders to the effect
that the provisions of this Agreement (including, without limitation,
provisions for
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adjustments of the Exercise Price and of the number of Warrant Shares
purchasable upon the exercise of the Warrants) shall thereafter be
applicable, as nearly as may be practicable, in relation to any securities or
assets thereafter deliverable upon the exercise of a Warrant. If any such
consolidation, merger or sale of assets would result in whole or in part in a
cash distribution to a Warrantholder equal to or in excess of the Exercise
Price, that Warrantholder may, at the Warrantholder's option, exercise the
Warrants (assuming that the Warrants are otherwise exercisable under Section
3.3) without making payment of the Exercise Price, and in such case Seller
shall, upon distribution to that Warrantholder, consider the Exercise Price
to have been paid in full, and in making settlement to the Warrantholder,
shall deduct an amount equal to the Exercise Price from the amount otherwise
payable to that Warrantholder. The Person purchasing such assets shall assume
by written instrument the obligation to deliver to the Warrantholders such
securities or assets as, in accordance with the foregoing provisions, such
Warrantholders may be entitled to purchase.
(c) DISSOLUTION, LIQUIDATION, ETC. In connection with any
liquidation, dissolution or winding up of its affairs, Seller shall give written
notice thereof to the Warrantholders at least 10 days before the record date for
the transaction in order to permit the Warrantholders to exercise, on or before
the record date, a Warrant or Warrants (if it or they are otherwise
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exercisable under Section 3.3 of this Agreement) but to receive only the
property described in this Section 3.5(c) rather than Warrant Shares.
Notwithstanding the provisions of Section 3.3 or of the certificates
representing the Warrants, the Warrants shall expire if not exercised within
that 10-day period. Upon such exercise, Warrantholder shall have the right to
receive, in lieu of the Warrant Shares that Warrantholder otherwise would
have been entitled to receive, the same kind and amount of assets as would
have been issued, distributed or paid to that Warrantholder upon any such
dissolution, liquidation or winding up with respect to such shares of Common
Stock had that Warrantholder been the holder of record of such shares of
Common Stock receivable upon exercise of the Warrants on the date for
determining the stockholders entitled to receive any such distribution. If
any such dissolution, liquidation or winding up results in any cash
distribution in excess of the Exercise Price provided by the Warrants, a
Warrantholder may, at that Warrantholder's option, exercise the Warrants
without making payment of the Exercise Price and, in such case, Seller shall,
upon distribution to that Warrantholder, consider the Exercise Price to have
been paid in full and, in making settlement to that Warrantholder, shall
deduct an amount equal to the Exercise Price from the amount payable to that
Warrantholder. This Section 3.5(c) shall not be applicable to any transaction
referred to in Section 3.5(b) of this Agreement.
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(d) ADJUSTMENT PROCEDURES. Seller may retain a firm of
independent public accountants of nationally recognized standing (who may be
any such firm regularly employed by Seller) to make any computation required
under this Section 3.5. A certification of such computation signed by such
firm shall, absent actual fraud, conclusively establish the correctness of
that computation.
(e) CERTIFICATION OF ADJUSTMENT. Whenever the number of
Warrant Shares or the Exercise Price may be adjusted as required by this
Section 3.5, Seller will promptly deliver to the Warrantholder or
Warrantholders, and make available for inspection at its principal office, an
officer's certificate showing the adjusted number of Warrant Shares and
Exercise Price and setting forth in reasonable detail the circumstances
requiring the adjustment.
(f) FRACTIONAL SHARES. Seller will not issue any fractional
shares of Common Stock upon exercise of a Warrant, but will instead deliver
its check for (or, at its option, apply against the Exercise Price payable)
the current market value of the fractional shares. The current market value
of a fraction of a share shall be determined by multiplying the Market Price
of a full share by the fraction, rounding the result to the nearest cent. For
purposes of this Section 3.5(f), "Market Price" shall not be determined on
the basis of an average of closing, sale or bid
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prices, as the case may be, over a specified period as provided in the
definition of Market Price contained in Article 1 of this Agreement, but
shall be the closing, sale or bid price, as the case may be, as of the close
of business of the trading day immediately preceding the date of exercise of
the Warrants.
(g) TAXES ON EXERCISE. Upon exercise of a Warrant, Seller shall
pay any documentary stamps or similar issue or transfer taxes due on the
issuance of Warrant Shares. However, a Warrantholder shall pay any such tax
which is due because the Warrant Shares are issued in a name other than the
Warrantholder's name.
3.6 TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT.
(a) TRANSFER RESTRICTIONS. The Warrants and Warrant Shares may not
be Transferred except in accordance with this Agreement.
(b) TRANSFER PROCEDURE. Any Transfer of a Warrant permitted under
this Agreement shall be made in increments that are multiples of 50,000
Warrant Shares and shall be made by surrender to Seller of the certificate
representing the Warrant being Transferred with appropriate Transfer
documents reasonably satisfactory to Seller, properly completed and duly
executed and accompanied by funds sufficient to pay any applicable Transfer
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taxes. Upon satisfaction of all Transfer requirements, including, without
limitation, the requirements contained in Section 8.5 of this Agreement,
Seller shall, without charge, execute and deliver a new warrant certificate
in the name of the transferee.
(c) LOSS, THEFT, ETC. Upon receipt by Seller of evidence
satisfactory to it of loss, theft, destruction or mutilation of a warrant
certificate and, in the case of loss, theft or destruction, of an indemnity
bond satisfactory to Seller (purchased by a Warrantholder at the
Warrantholder's expense) or, in the case of mutilation, upon surrender of the
warrant certificate, Seller will execute and deliver a new warrant
certificate of like tenor and date and any such lost, stolen or destroyed
warrant certificate thereupon shall become void.
3.7 STOCKHOLDER RIGHTS AGREEMENT.
(a) DEFINITIONS. Capitalized terms used in this Section 3.7 and not
otherwise defined in this Agreement have the meanings given them in the
Stockholder Rights Agreement.
(b) SHARE CERTIFICATES. The certificate representing the Shares
delivered to Purchaser under Section 2.2 of this Agreement shall also
represent the Stockholder Rights in respect of such Shares, as provided in
the Stockholder Rights Agreement and, except as otherwise provided in this
Agreement,
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subject to the terms and conditions contained therein. However, if there has
occurred a Distribution Date prior to the Closing and the Stockholder Rights
have not been authorized for redemption and have not otherwise lapsed or been
terminated, appropriate Right Certificates shall be delivered to Purchaser
in respect of the Shares as provided in the Stockholder Rights Agreement, all
as if the Closing had occurred prior to such Distribution Date.
(c) WARRANT SHARES. If a Warrantholder exercises a Warrant prior
to a Distribution Date and the Stockholder Rights have not been authorized
for redemption and have not otherwise lapsed or been terminated, the
certificate representing the Warrant Shares shall also represent the
Stockholder Rights in respect of such Warrant Shares, as provided in the
Stockholder Rights Agreement and, except as otherwise provided in this
Agreement, subject to the terms and conditions contained therein. If a
Warrantholder exercises a Warrant following a Distribution Date but prior to
an Expiration Date, the Warrantholder shall receive from Seller a certificate
or other instrument representing rights ("Equivalents") which are equivalent
to the Stockholder Rights in respect of the Warrant Shares the Warrantholder
would have received had the Warrantholder exercised the Warrant prior to such
Distribution Date. Such Equivalents shall provide the Warrantholder with
rights as equivalent as is reasonably practicable to those held by holders of
Stockholder Rights immediately after such Distribution Date.
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(d) EXERCISE OF WARRANTS. At any time at which either Primary
Rights or Secondary Rights are exercisable as provided in Sections 7 and 8,
respectively, of the Stockholder Rights Agreement, all Warrants, whether or
not exercisable under Section 3.3 of this Agreement, shall be exercisable
during such periods and may be exercised in accordance with Section 3.3(d)
of this Agreement. Except during such periods, the Warrants shall not be
exercisable other than in accordance with the terms of this Agreement.
(e) RELATIONSHIP TO STOCKHOLDER RIGHTS AGREEMENT. Nothing in this
Agreement shall provide any Person with any rights or benefits under, or
relieve any Person of any disabilities or limitations imposed under, the
Stockholder Rights Agreement, as it may be amended or supplemented from time
to time, except as such Person may be entitled or subject to under the
Stockholder Rights Agreement, as it may be amended or supplemented from time
to time, including, without limitation, the type of property such Person
would be entitled to receive upon exercise of Primary Rights or Secondary
Rights or Equivalents or the non-effectiveness of Primary Rights or Secondary
Rights or Equivalents held by a Person who is a 15% Person or a 25% Person,
respectively. Nothing in this Agreement shall be deemed to constitute an
amendment or modification of, or in any way limit or affect, the Stockholder
Rights Agreement. If Seller amends the Stockholder Rights Agreement or
establishes a successor or additional stockholder
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rights plan, the provisions of this Section 3.7 shall remain effective under
and be applicable to such amended, successor or additional plan, as near as
may be to further the intent of this Section 3.7(e), giving regard to the
differences between the Stockholder Rights Agreement and any successor or
additional stockholder rights plan.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that, as of the date
of this Agreement:
4.1 ORGANIZATION. Each of Seller and each Seller Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has full corporate power and
authority to own or lease its properties and to carry on its business as it
is now being conducted.
4.2 STATUS OF THE SHARES AND WARRANTS. The Shares and the Warrants have
been duly authorized for issuance and sale to Purchaser pursuant to this
Agreement and, when issued and delivered to Purchaser at the Closing, will be
validly issued, fully-paid and non-assessable. Seller has reserved, and at
all times from the date of this Agreement until the expiration of the
Warrants shall
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continue to reserve, for issuance and delivery upon exercise of the Warrants,
the appropriate number of Warrant Shares as may be required for issuance and
delivery upon exercise of the Warrants. When issued and delivered upon
exercise of the Warrants as provided in this Agreement, the Warrant Shares
will be validly-issued, fully-paid and non-assessable. Upon delivery of the
Shares, the Warrants and the Warrant Shares and payment of the purchase price
therefor as provided in this Agreement, but subject to the provisions of this
Agreement, Purchaser and, in the case of the Warrant Shares, the
Warrantholders, will receive good and marketable title to the Shares, the
Warrants and the Warrant Shares, as the case may be, free and clear of any
adverse claim. The issuance and sale of the Shares, the Warrants and the
Warrant Shares will not give rise to any pre-emptive rights on behalf of any
person under any provision of applicable law, Seller's Certificate of
Incorporation or Bylaws, or any agreement or instrument to which Seller is a
party.
4.3 CAPITALIZATION. The authorized capital stock of Seller consists of
75,000,000 common shares, $.01 par value, and 10,000,000 shares of preferred
stock. Of the common shares, 750,000 shares have been designated as Series B
Common Stock, of which, as of April 21, 1989, 363,265 are issued and
outstanding, and 26,329,384 shares of Common Stock are issued and
outstanding. No shares of preferred stock are issued and outstanding. All of
the issued and outstanding shares of capital stock have been duly
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authorized, validly issued and fully paid and are non-assessable and free of
preemptive rights. Except as set forth on SCHEDULE 4.3: (i) there are no
outstanding subscriptions, options, calls, rights, warrants, convertible
securities, unsatisfied preemptive rights or other agreements or commitments
of any character obligating Seller to issue (or reserve for issuance) or to
transfer or sell any shares of its capital stock of any class, and (ii) there
are no agreements or commitments obligating Seller to repurchase or redeem
any of its capital stock.
4.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. Seller has delivered to
Purchaser a copy of Seller's Certificate of Incorporation, certified by the
Delaware Secretary of State, and a copy of its By-laws, certified by an
Assistant Secretary of Seller. The Certificate of Incorporation and Bylaws
have not been amended other than as reflected in those certified copies.
4.5 CONSENTS AND CONFLICTS. Neither the execution and delivery of this
Agreement by Seller nor the performance by Seller of its obligations under
this Agreement will conflict with, result in the breach of any of the terms
or conditions of, constitute a default under, permit any party to accelerate
any right under, require consent, approval or waiver by any private party
under, or result in the creation of any lien, charge or encumbrance upon any
of the properties, assets or capital stock of Seller or any Seller Subsidiary
pursuant to, any charter document of Seller or any
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Seller Subsidiary or any material agreement or obligation to which Seller or
any Seller Subsidiary is a party or by which Seller or any Seller Subsidiary
or any of its material assets is bound or affected.
4.6 AUTHORITY RELATING TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement by Seller, including, without limitation, the
issuance of the Securities, has been duly authorized by all necessary action
of the Board of Directors of Seller and all corporate action of Seller
necessary for such execution, delivery and performance has been duly taken.
Seller has duly and validly executed and delivered this Agreement, and this
Agreement constitutes a valid, binding and enforceable obligation of Seller
in accordance with its terms, subject, as to enforcement, to (i) bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (ii) general
principles of equity, whether such enforcement is considered in a proceeding
in equity or at law.
4.7 1934 ACT FILINGS AND FINANCIAL STATEMENTS. Seller has filed all
reports and proxy or information statements with the SEC required to be filed
by it pursuant to Section 13 or 14 of the 1934 Act since July 1, 1987 (the "SEC
Filings"). To Seller's knowledge, no such filing (as of its filing date)
contained any untrue statement of a material fact act or omitted to state a
material
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fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. As of the dates thereof and for the periods covered
thereby, the financial statements contained in Seller's Annual Report on Form
10-K for the fiscal year ended June 30, 1988, and Seller's Quarterly Report
on Form 10-Q for the three months ended December 31, 1988 (the "10-Q") (i)
are in accordance with the books and records of Seller and its subsidiaries;
(ii) fairly present the consolidated financial position of Seller and its
consolidated results of operations, stockholders' equity and cash flows (but
subject, in the case of the financial statements included in the 10-Q, to
normal year-end audit adjustments that will not be material in amount or
effect) and (iii) have been prepared in accordance with generally accepted
accounting principles and practices (subject, in the case of the financial
statements included in the 10-Q, to the absence of certain footnote
disclosures and certain financial statement information) applied on a
consistent basis.
4.8 ABSENCE OF CERTAIN EVENTS. Since December 31, 1988, (i) to Seller's
knowledge there has not been any Materially Adverse Event (as defined below),
or (ii) any declaration, payment or setting aside of any dividend or other
distribution to or for the holders of capital stock of Seller or any Seller
Subsidiary (except dividends or other distributions paid to Seller or to a
Seller Subsidiary, and except for distributions made in connection with
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the repurchase of shares upon termination of employment pursuant to stock
repurchase agreements with employees) including, without limitation, any
redemption or purchase of any such capital stock. Seller has not incurred any
"accumulated funding deficiency" (within the meaning of Section 412 of the
Internal Revenue Code) in respect of any employee benefit plan. No employees
of Seller are participants in any "multiemployer plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended. For purposes
of this Section 4.8, "Materially Adverse Event" means any event, condition or
circumstance (other than general economic developments or conditions or other
matters generally known or knowable to the public) which has had or is likely
to have a material adverse effect on the financial position, results of
operations or business of Seller and the Seller Subsidiaries, taken as a
whole, as compared to the state of affairs which would have existed or would
exist if such event, condition or circumstance had not occurred or was not
likely to occur.
4.9 LITIGATION AND OTHER PROCEEDINGS. SCHEDULE 4.9 sets forth all
actions, suits or proceedings pending or, to the knowledge of Seller,
threatened, against Seller or any Seller Subsidiary, and all decrees,
injunctions, and orders of any court, governmental agency, or arbitrator
outstanding and effective against Seller or any Seller Subsidiary, it being
understood that the representations and warranties in this Section 4.9 do not
relate to or include any matters relating to patent rights or any
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approval proceedings or evaluations of Seller's products, processes or
services before the United States Food and Drug Administration, the United
States Department of Agriculture, the United States Patent and Trademark Office
or any other federal, state or foreign agency.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that, as of the date
of this Agreement:
5.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey and
has full corporate power and authority to own or lease its properties and to
carry on its business as it is now being conducted.
5.2 AUTHORITY RELATING TO THIS AGREEMENT. The execution, delivery and
performance of this Agreement by Purchaser has been duly authorized by all
necessary action of the Board of Directors of Purchaser, and all corporate
action of Purchaser necessary for such execution, delivery and performance
has been duly taken. Purchaser has duly and validly executed and delivered
this Agreement, and this Agreement constitutes a valid, binding and
enforceable obligation of Purchaser in accordance with its terms,
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subject, as to enforcement, to (i) bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability relating to
or affecting creditors' rights and (ii) general principles of equity, whether
such enforcement is considered in a proceeding in equity or at law.
5.3 UNDERTAKING OF PARENT. Purchaser, concurrently with the execution
and delivery of this Agreement, is delivering to Seller an undertaking of F.
Hoffmann-La Roche & Co. Limited Company, which indirectly owns 100% of the
issued and outstanding shares of Purchaser, ("Parent"), in the form attached
as EXHIBIT C to this Agreement (the "Parent Undertaking"). Parent, by signing
the Parent Undertaking, confirms that the execution, delivery and performance
of the Parent Undertaking by Parent has been duly authorized by all necessary
action of the Boards of Directors, or comparable bodies, of Parent and of the
other entities which the Parent Undertaking purports to bind, and all
corporate action of Parent and of the other entities which the Parent
Undertaking purports to bind, necessary for such execution, delivery and
performance, has been duly taken. Parent has duly and validly executed and
delivered the Parent Undertaking, and the Parent Undertakinq constitutes a
valid, binding and enforceable obligation of Parent and of the other entities
which the Parent Undertaking purports to bind, in accordance with its terms,
subject, as to enforcement, to (i) bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability
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relating to or affecting creditors' rights and (ii) general principles of
equity, whether such enforcement is considered in a proceeding in equity or
at law.
5.4 INVESTMENT INTENT. Purchaser is purchasing the Shares and Warrants
for its own account for investment and not with a view to, or for a sale in
connection with, any distribution within the meaning of the 1933 Act.
Purchaser has had a reasonable and adequate opportunity to discuss Seller's
business, management and financial affairs with Seller's management and
believes it has received satisfactory responses to its inquiries from
Seller's management. Seller acknowledges, however, that the representations
and warranties contained in this Section 5.4 do not limit or modify the
representations and warranties of Seller contained in Article 4 of this
Agreement.
ARTICLE 6
REGISTRATION RIGHTS AND RELATED MATTERS
6.1 REGISTRATION ON FORM S-3. Seller shall use its best efforts to
register the Shares and the Warrant Shares under the 1933 Act by filing prior
to June 20, 1989 a registration statement or registration statements on Form
S-3 covering the Shares and the Warrant Shares, and shall use its best
efforts to have such registration statement or registration statements
declared effective as promptly as possible and to maintain the effectiveness
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of such registrations ("Registrations") for the periods specified below.
Seller will keep Purchaser advised in writing as to the initiation of any
Registration and as to the status and completion of any Registration, and
Seller shall:
(a) Use its best efforts to keep such Registrations effective, in
the case of the Shares, for three years and thereafter until
the Warrant Shares may be publicly sold without volume
limitations pursuant to Rule 144 under the 1933 Act and, in
the case of the Warrant Shares, for the entire periods within
which the Warrants may be exercised and until the Warrant
Shares may be publicly sold without volume limitations
pursuant to Rule 144;
(b) Prepare and file with the SEC whatever amendments or
supplements to the registration statements and the
prospectuses contained in the registration statements which
are necessary to comply with the provisions of the 1933 Act;
(c) Furnish such number of prospectuses and other documents
incident thereto as from time to time Purchaser may reasonably
request; and
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(d) Use its reasonable best efforts to register or qualify the
Shares and the Warrant Shares covered by such registration
statements under such other securities or blue sky laws of
such jurisdictions where an exemption is not available and as
Purchaser shall reasonably request, to keep such registration
or qualification in effect for so long as such registration
statement remains in effect, and to take any other action that
may be reasonably necessary or advisable to enable Purchaser
to consummate the disposition of the Shares and the Warrant
Shares in such jurisdictions, except that Seller shall not,
for any such purpose, be required to qualify generally to do
business as a foreign corporation in any jurisdiction in which
it would not, but for the requirements of this subdivision
(d), be obligated to be so qualified or to consent to general
service of process in any such jurisdiction.
Seller shall have no obligation to register the Warrants under the 1933 Act
or to enter into any underwriting, placement or similar agreement in connection
with any Registration.
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6.2 INDEMNIFICATION
(a) Seller shall indemnify Purchaser, each of its directors,
officers, employees and controlling persons, its legal counsel and independent
accountants, and any underwriters and controlling persons of such underwriters,
against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlment of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, or any amendment or supplement thereto,
incident to a Registration, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by Seller of any rule or regulation promulgated
under the 1933 Act applicable to Seller in connection with a Registration, and
Seller shall reimburse Purchaser, such directors, officers, employees,
controlling persons, legal counsel, independent accountants, underwriters and
controlling persons of such underwriters for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action; provided that Seller will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue
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statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with information furnished to Seller by or on
behalf of Purchaser.
(b) Subject to the limitation set forth in the second sentence of
this Section 6.2(b), Purchaser shall indemnify Seller, each of its directors,
officers, employees and controlling persons, its legal counsel and
independent accountants, and any underwriters and controlling persons of such
underwriters, against all expenses, claims, losses, damages or liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, or any
amendment or supplement thereto, incident to a Registration, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, and Purchaser
shall reimburse Seller, such directors, officers, employees, controlling
persons, legal counsel, independent accountants, underwriters and controlling
persons of such underwriters, for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action. Such indemnification and
reimbursement obligation shall be effective to
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the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus or other document in reliance upon and in
conformity with information furnished to Seller by or on behalf of Purchaser.
(c) Each party entitled to indemnification under this Section 6.2
(an "Indemnified Party") shall give notice to the party required to provide
indemnification (an "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party at its expense to assume the defense
of any such claim or any litigation resulting therefrom; provided that
counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at the Indemnified Party's expense. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability to such claimant or
plaintiff in respect of such claim or litigation.
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(d)(i) If for any reason the indemnification provided for in
Section 6.2(a) and 6.2(b) is unavailable to or insufficient to hold harmless
an Indemnified Party in respect of any expenses, claims, losses, damages or
liabilities specifically covered by the indemnification provisions set forth
in Sections 6.2(a) or 6.2(b), then the Indemnifying Party shall contribute to
the amount paid or payable by the Indemnified Party as a result of such
expenses, claims, losses, damages or liabilities in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying
Party on the one hand and Indemnified Party on the other from the
Registration and offering of the Shares and Warrant Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then the Indemnifying Party shall contribute so the amount
paid or payable by the Indemnified Party is in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Indemnifying Party and the Indemnified Party, as well as any
other relevant equitable considerations. The relative fault of the
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
so to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such action. The amount paid or payable by a party as a
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result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party.
(ii) Seller and Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 6.2(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The indemnification provided for in Section 6.2 (a) and 6.2(b)
shall be made by periodic payments of the amounts thereof when it is
reasonably apparent that indemnification will be available under those
Sections, and as and when bills are received or expense, loss, damage or
liability is incurred, subject to refund in the event that any such payments
are determined not to have been due and owing hereunder. The provisions for
contribution set forth in Section 6.2(d) shall, to the extent practicable, be
similarly administered.
6.3 INFORMATION FROM PURCHASER. Purchaser shall furnish to Seller such
information regarding Purchaser as Seller may
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reasonably request and as shall be required in connection with any Registration
and any qualification contemplated by this Article 6. Purchaser shall be
entitled to a reasonable opportunity to review, prior to filing or release by
Seller, such information regarding Purchaser as Seller proposes to include in
registration statements, prospectuses and other filings or public disclosures
prepared by Seller under Section 6.1 of this Agreement.
6.4 REGISTRATION EXPENSES. All expenses incident to Seller's
performance of or compliance with Section 6.1, including, without limitation,
all registration, filing and NASD fees and all fees and expenses of complying
with securities or blue sky laws, shall be paid by Seller; provided, however,
that such expenses shall not include underwriting, placement or other selling
discounts, commissions, fees and expenses, transfer taxes, if any, and fees and
disbursements of counsel to Purchaser (other than fees and disbursements
relating to compliance with blue sky laws), all of which shall be paid by
Purchaser. At Seller's option and expense, Seller may assume responsibility for
and retain counsel for compliance with blue sky laws, in which case Seller shall
have no obligation to pay any fees and disbursements of counsel to Purchaser or
to any underwriter for compliance with blue sky laws.
6.5 RESTRICTIONS ON TRANSFER. Purchaser acknowledges that, as of the
date of this Agreement and the Closing, the Securities have not been registered
under the 1933 Act and that, in
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addition to the limitations imposed by Section 3.1 and Articles 6, 8 and 9 of
this Agreement, Purchaser may not Transfer any Securities unless and until
such Securities are registered for resale under the 1933 Act (and qualified
under applicable state securities laws) or until an exemption from such
registration and qualification is available. Purchaser shall not Transfer any
Securities otherwise than pursuant to an effective Registration, unless and
until Purchaser first provides to Seller an opinion of counsel reasonably
satisfactory to Seller to the effect that no such Registration is required
because of the availability of an exemption from registration under the 1933
Act and under applicable state securities laws.
6.6 LEGEND. Until such time, if at all, as the Shares and the Warrant
Shares are the subject of an effective Registration, and, in the case of the
Warrants, at all times, the certificates representing such Securities shall
be stamped or otherwise imprinted on their face with a legend in the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION, GIFT OR OTHER DISPOSITION OF SUCH SECURITIES IS
INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO
SUCH TRANSACTION OR UNLESS CETUS CORPORATION HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
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ARTICLE 7
ADDITIONAL COVENANT OF SELLER
For so long as the Voting Power of all Voting Stock and Rights
beneficially owned by all Investor Entities taken together represents 2% or
more of the Total Voting Power, Seller shall give Purchaser prompt notice of
(i) any notice under the HSR Act received by Seller from a third party and
relating to Voting Stock or Rights and (ii) any Statement on Schedule 13D or
14D-1 under the 1934 Act received by Seller from a third party and relating
to Voting Stock or Rights, other than a statement filed by Purchaser or
another Investor Entity.
ARTICLE 8
ADDITIONAL COVENANTS OF PURCHASER
8.1 GENERALLY. Purchaser agrees (i) to the provisions of Article 8 and
Article 9 of this Agreement and (ii) that any and all open-market or other
acquisitions or dispositions of Voting Stock or Rights by any Investor Entity
shall be made in compliance with all applicable laws and regulations and the
provisions of this Agreement.
8.2 LIMITATION ON ACQUISITIONS. No Investor Entity shall, directly or
indirectly, acquire beneficial ownership of any
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Voting Stock or Rights (except, in either case, by way of stock
dividends or other distributions of Voting Stock or Rights by Seller to
holders of all Voting Stock or Rights, as the case may be), if the effect of
that acquisition would be to increase the aggregate Voting Power of all
Voting Stock and Rights beneficially owned by all Investor Entities taken
together to more than 15% of the Total Voting Power, provided that such
Investor Entities may acquire more than 15% of the Total Voting Power as a
result of exercising any Warrants if (and only to the extent that) one or
more adjustments provided for in Section 3.5 of this Agreement have resulted
in an increase in the percentage of Total Voting Power which may be acquired
upon exercise of the Warrants as compared with the percentage of Total Voting
Power which could have been acquired upon exercise of the Warrants prior to
any such adjustment. However, Investor Entities may acquire Voting Stock or
Rights without regard to the foregoing limitation if and after either (i) a
Person unaffiliated with any Investor Entity beneficially owns Voting Stock
or Rights having Voting Power which in the aggregate exceeds 25% of the Total
Voting Power or (ii) any Person unaffiliated with any Investor Entity
commences a bona fide tender offer or other offer known to Seller for Voting
Stock or Rights which, if completed, would result in that Person
beneficially owning Voting Stock and Rights having Voting Power which in the
aggregate would exceed 35% of the Total Voting Power (considering, for this
purpose, an offer to have been commenced when, but not before, offering
documents are first published or given to holders of Voting Stock or Rights,
or the fact of the
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offer is otherwise made known to Seller, as the case may be). If, thereafter,
such unaffiliated Person ceases to own beneficially Voting Stock and Rights
having Voting Power which in the aggregate exceeds 25% of the Total Voting
Power or such tender offer or other offer is terminated, withdrawn or
enjoined, fails to close within 20 calendar days after its stated
expiration date, or is modified so that, if it is completed, such Person
would beneficially own Voting Stock and Rights having Voting Power which in
the aggregate would not exceed 35% of the Total Voting Power, then the 15%
limitation shall be reimposed upon the Investor Entities. However, under any
of those circumstances, no Investor Entity shall be obligated to dispose of
any Voting Stock or Rights which were acquired by it in accordance with this
Agreement before such cessation, termination, withdrawal, failure, injunction
or modification, or be obligated to not acquire any Voting Stock or Rights
which it continues to be obligated to acquire by virtue of a legal commitment
it entered into in accordance with this Agreement before such cessation,
termination, withdrawal, failure, injunction or modification. Moreover, in no
event shall any Investor Entity be obligated to dispose of any Voting Stock
or Rights or be prevented from exercising any Warrants to the extent that the
aggregate Voting Power of the Voting Stock or Rights already owned by it has
increased beyond the 15% limitation as a result of (but only to the extent
that) Total Voting Power of the Company is reduced through any action by the
Seller, including, without limitation, any stock repurchase, recapitalization
program or self-tender offer effected by Seller.
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8.3 VOTING. The Investor Entities shall cause all Voting Stock owned by
them to be voted for Seller's nominees to its Board of Directors and, unless
Seller otherwise consents in writing, on all other matters to be voted on by
holders of Common Stock in the same proportion as the votes cast by the other
holders of Voting Stock with respect to such matters; provided, however, that
Voting Stock owned by Purchaser may be voted as Purchaser determines in its
sole discretion on any Significant Event presented to the holders of Voting
Stock for a vote. As used in this Section 8.3, "Significant Event" means; (i)
any amendment of Seller's Certificate of Incorporation or by-laws, (ii) any
disposition, business combination or other reorganization transaction
involving Seller (by way of merger, consolidation, acquisition, sale of
assets or otherwise), (iii) any "election contest" (as that term is used in
Rule 14a-11 of Regulation 14A under the 1934 Act and subject to Section 8.4
of this Agreement), (iv) any recapitalization of Seller; (v) any liquidation
or dissolution of Seller; (vi) any matter relating to issuance of securities
by Seller, including, without limitation, the adoption of stock option or
similar plans; (vii) any matter arising under Section 203 of the Delaware
General Corporation Law or any successor provision; or (viii) any other
action (other than actions contemplated by this Agreement) which is out of
the ordinary course of Seller's business. The Investor Entities, as holders
of Voting Stock, shall be present in person or by proxy at every meeting of
the stockholders of the Company, whatever the purpose or purposes
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of the meeting, so that all Voting Stock beneficially owned by them may be
counted in determining the presence of a quorum at the meeting.
8.4 CERTAIN OTHER ACTIVITIES. No Investor Entity shall deposit any
Voting Stock or Rights in a voting trust or subject any Voting Stock or
Rights to any arrangement, agreement or understanding (except among
themselves) with respect to the voting of any Voting Stock. No Investor
Entity shall become a "participant" or a "participant in a solicitation" (as
such terms are used in Rule 14a-11 of Regulation 14A under the 1934 Act) with
respect to the election as directors of Seller of any persons in opposition
to or different from Seller's nominees for director. Except as expressly
permitted by this Agreement, no Investor Entity shall join any Person or
otherwise act in concert with any Person (other than another Investor Entity)
for the purpose of acquiring, holding, voting (whether for directors or
otherwise) or disposing of any Voting Stock or Rights, obtaining control of
Seller, or causing or influencing any such Person to take any such action.
8.5 RESTRICTIONS ON TRANSFER. No Investor Entity shall Transfer any
Securities to any Person except (i) Seller, (ii) any Person expressly
approved for that purpose in advance of the Transfer by Seller's Board of
Directors, (iii) Purchaser, or (iv) an Investor Entity (each of the Persons
described in clauses
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(i) - (iv) being a "Permitted Transferee"), until such Investor Entity has
first fully complied with Article 9 of this Agreement.
8.6 ADDITIONAL LEGEND. All certificates evidencing Securities
beneficially owned by any Investor Entity shall, in addition to the legend
required by Section 6.6 of this Agreement, be stamped or otherwise imprinted on
their face with the following legend until such time as Purchaser or any
transferee thereof delivers to Seller an opinion of counsel reasonably
acceptable to Seller to the effect that the restrictions to which it refers are
no longer applicable to the Securities represented by the certificates:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A STOCK PURCHASE AND WARRANT AGREEMENT DATED MAY 9, 1989
BETWEEN CETUS CORPORATION AND HOFFMAN-LA ROCHE INC. THE SECURITIES
MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, GIFTED, TRANSFERRED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED FROM THE GENERAL COUNSEL OF
CETUS CORPORATION."
Seller may enter a stop transfer order with any transfer agent of the Securities
against a Transfer of such Securities except in compliance with this Agreement.
8.7 RETRANSFER. If and before any Investor Entity (other than
Purchaser) ceases to be an Investor Entity, it shall Transfer all Voting Stock
and Rights then beneficially owned by it
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to Purchaser or to another Investor Entity which continues to be an
Investor Entity.
ARTICLE 9
SELLER'S RIGHT OF PURCHASE
9.1 GENERALLY. Before making any Transfer of Securities to any Person
other than a Permitted Transferee, an Investor Entity shall first give Seller
an opportunity to acquire the Securities in accordance with this Article 9.
If Purchaser desires to Transfer any Securities other than to a Permitted
Transferee in any transaction that does not satisfy the manner of sale
requirements of Rule 144(f) under the 1933 Act (as currently in effect), it
shall first give Seller a notice specifying the amount of Securities proposed
to be Transferred, the proposed terms and conditions of the Transfer, the
identity of the proposed transferee and, if different, the proposed
beneficial owners of the Securities and the proposed manner of transfer, all
in reasonable detail, and all if and to the extent known to the Investor
Entity or, if there is at the time of such notice no understanding with any
such proposed transferee, a statement to such effect and a statement that the
Investor Entity intends to offer the Securities in a transaction that does
not satisfy the Rule 144(f) manner of sale requirements, at a price and on
terms as specified in such notice, or at a price or on terms more favorable
to the Investor Entity. In the alternative, if Purchaser desires to Transfer
Securities in
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a transaction that satisfies the manner of sale requirements of Rule 144(f),
it shall first give notice thereof to Seller. In either case, Seller shall
have the right, exercisable by written notice given to Purchaser within 10
trading days after its receipt of Purchaser's notice, to acquire all, but not
less than all, of the Securities specified in the Transfer notice, in the
case of a transaction that does not satisfy such Rule 144(f) manner of sale
requirements, on the same terms and conditions as those specified in
Purchaser's notice, or, in the case of a transaction that satisfies such Rule
144(f) manner of sale requirements, at the Market Price, together with
payment by Seller of simple interest on the aggregate purchase price from the
date which is 10 days after the date of Seller's notice to the closing date
at a rate equal to the Prime Rate. If Seller exercises this right of
purchase, the closing of its acquisition of the Securities shall take place
within 30 calendar days after Seller gives its notice, but earlier if the
Seller so elects. However, that period shall be extended, if necessary, in
order to permit compliance with any applicable laws or regulations. Upon
exercise of Seller's right of purchase, Seller and the Investor Entity shall
be legally obligated to complete the transaction and shall use their best
efforts to secure any required approvals. If Seller does not exercise its
right of purchase within the time specified for its exercise, the Investor
Entity shall be free, during the 45 days following the expiration of such
time for exercise, to complete the Transfer of the Securities specified in
its Transfer notice at, in the case of a
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<PAGE>
transaction that does not satisfy such Rule 144(f) manner of sale requirements,
the same price and terms as, or at a price and terms more advantageous to the
Investor Entity than specified in such notice if such identification was made,
and, if no such identification was made, to any party, or, in the case of a
transaction that satisfies such Rule 144(f) manner of sale requirements, at a
price fairly available in the market for Rule 144(f) transactions at the time
such transactions are effected. Any proposed Transfer on materially different
terms (including to a different transferee if a transferee was identified in the
notice or to a transferee with different beneficial owners), or after the
expiration of that 10-day period, shall again give rise to Seller's right to
acquire the Securities under this Article 9. For purposes of this Section 9.1,
"Market Price" shall not be determined on the basis of an average of closing,
sale or bid prices, as the case may be, over a specified period as provided in
the definition of Market Price contained in Article 1 of this Agreement, but
shall be the closing, sale or bid price, as the case may be, as of the close of
business of the day of Purchaser's notice.
9.2 TENDER OFFERS. Notwithstanding Section 9.1, this Section 9.2
shall apply if the Investor Entity desires to sell Securities to a tender
offeror in a tender offer. Before making any Transfer of Securities to the
tender offeror, an Investor Entity shall give Seller the opportunity to acquire
such Securities in accordance with this Section 9.2. The Investor Entity shall
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<PAGE>
give written notice to Seller of its intention to accept the tender offer no
later than 12 business days before the last date by which the Investor Entity
must tender the Securities in order that they be accepted in the offer (the
"Tender Date"). The notice shall specify the amount of Securities proposed to
be tendered. For purposes of this Section 9.2, a tender offer to purchase
Securities shall be deemed to be an offer at the price specified therein,
without regard to any provisions thereof with respect to proration or conditions
to the offeror's obligation to purchase. Seller shall have the right,
exercisable by written notice given to Purchaser at least two business days
before the Tender Date, to purchase all, but not less than all, of the
Securities specified in the notice from the Investor Entity. The consideration
to be paid by Seller to the Investor Entity for such Securities shall be the
best price offered (that is, if the tender offer is completed, the price the
Investor Entity would have received in the offer had the Securities purchased by
Seller been tendered and purchased by the offeror, including any increases in
the price actually paid by the offeror or, if the offer is not completed, the
highest bona fide price offered pursuant to the tender offer) plus simple
interest on the aggregate purchase price from the date of Seller's notice to the
closing date at a rate equal to the Prime Rate. If Seller exercises this right
of purchase, the closing of its purchase of the Securities shall take place
within 30 calendar days after Seller gives its exercise notice, but earlier if
Seller so elects. However, that period shall be extended, if necessary, in
order to
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<PAGE>
permit compliance with any applicable laws or regulations. Upon exercise of
Seller's right of purchase, Seller and the Investor Entity shall be legally
obligated to complete the purchase and shall use their best efforts to secure
any required approvals. If Seller does not timely exercise its right of
purchase, the Investor Entity shall be free to accept the tender offer with
respect to the Securities specified in its notice. If the terms and
conditions of the tender offer are changed, other than an increase in the
price, Seller shall within two days thereafter notify Purchaser whether it
considers the change to have been material, in which case Seller's right of
purchase shall be reinstated. Purchaser shall, within two days after receipt
of Seller's notice, notify Seller of any change in Purchaser's decision to
accept or not accept the tender offer.
9.3 NON-CASH OFFERS. If the consideration specified in an offer referred
to in Sections 9.1 or 9.2 includes any securities or property other than cash
and Seller and Purchaser do not promptly agree on the value of the securities
or property, such value shall be determined by a nationally recognized
investment banking firm jointly and promptly selected by Seller and
Purchaser. The parties shall use their best efforts to cause any
determination of the value of such securities or property to be made by such
investment banking firm within seven days after the date of delivery of
Seller's exercise notice. If for any reason the value cannot be determined
within that period, the transaction may, at Seller's option, be closed on the
following basis. Seller shall
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pay Purchaser an amount equal to Seller's good faith estimate of the value of
the consideration offered by the third party, in consideration of the
delivery by Purchaser to Seller of the Securities being Transferred, and the
Transfer of ownership of the Securities shall be considered completed. At
Purchaser's election, the investment banking firm shall determine the values
of the consideration paid by Seller and the consideration offered by the
third party, and any difference in such values shall be reconciled by
appropriate cash payment from Seller to Purchaser or from Purchaser to
Seller, as the case may be, together with interest on such amount from the
date of the closing to the payment date at a rate equal to the Prime Rate.
Seller shall be entitled, at its option, in either case, to pay in cash or in
securities or property of a substantially like tenor and quality as those
offered by the third party.
9.4 RIGHT TO DESIGNATE ANOTHER PURCHASER. If Seller elects to exercise
its right of purchase under this Article 9, it may specify another Person as
its designee to purchase some or all of the Securities to which its notice
relates at any time before the closing of such purchase. Such designation
shall in no way relieve, limit or otherwise affect the obligation of Seller
to purchase such Securities if its designee fails to do so.
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<PAGE>
ARTICLE 10
MISCELLANEOUS
10.1 EXPENSES. Subject to the provisions of Section 6.4 of this
Agreement, Seller and Purchaser shall each pay their own costs and expenses,
including all legal and accounting fees, relating to this Agreement, the
negotiations leading up to this Agreement and the transactions contemplated
by this Agreement.
10.2 AMENDMENT. This Agreement shall not be amended in any manner
whatsoever except by a writing duly executed by each party.
10.3 ENTIRE AGREEMENT. This Agreement, the Exhibits, the Schedules and
the License Agreements contain all of the terms and conditions agreed upon by
the parties relating to the subject matter of this Agreement and supersede
all prior and contemporaneous agreements, negotiations, correspondence,
undertakings and communications between the parties, whether oral or written,
respecting that subject matter, including, without limitation, the Letter
Agreement.
10.4 HEADINGS. The headings contained in this Agreement are intended
primarily for convenience and shall not, by themselves, determine the rights
of the parties to this Agreement.
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<PAGE>
10.5 MUTUAL CONTRIBUTION. No provision of this Agreement shall be
construed against any party on the ground that that party drafted the
provision or caused it to be drafted.
10.6 NOTICES. All notices, requests, demands and other communications
made in connection with this Agreement shall be in writing and shall be
deemed to have been duly given on the date of delivery or transmission, if
hand delivered or transmitted by telex or telecopy, as the case may be, or
three days after mailing if mailed by certified or registered mail, postage
prepaid, return receipt requested, addressed as follows:
IF TO SELLER:
Cetus Corporation
1400 Fifty-Third Street
Emeryville, California 94608
Attn: Executive Vice President
WITH COPY TO:
Cetus Corporation
1400 Fifty-Third Street
Emeryville, California 94608
Attn: General Counsel
IF TO PURCHASER:
Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, New Jersey 07100
Attn: Jon Saxe, Esq., Vice President
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<PAGE>
WITH COPY TO:
Hoffmann-La Roche Inc.
340 Kingsland Street
Nutley, New Jersey 07100
Attn: Harold F. Boardman, Esq.,
General Counsel
Such addresses may be changed, from time to time, by means of a notice given
in the manner provided in this Section 10.6. Notices from Seller to
Warrantholders other than Purchaser shall be given in the manner provided in
this Section 10.6 at the addresses provided by such Warrantholders to Seller.
10.7 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to
the extent possible. In any event, all other provisions of this Agreement
shall be deemed valid and enforceable to the fullest extent possible.
10.8 ASSIGNMENT; SUCCESSORS. Purchaser may freely assign this Agreement
to any Investor Entity, but may not assign it to any other Person without the
prior written consent of Seller. Any attempted assignment in violation of
this Section 10.8 shall be voidable at Seller's option, provided, however,
that Purchaser may
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assign its rights and delegate its obligations under Article 6 of this
Agreement to a non-Investor Entity transferee of both the Shares and the
Warrants in connection with Transfers of Securities pursuant to Section 8.5
of this Agreement, it being understood that the term "Purchaser" as used in
Article 6 of this Agreement means both Purchaser and, after such a transfer
of Purchaser's entire interest in the Shares and the Warrants, such
transferee. Subject to the other provisions of this Section 10.8, this
Agreement shall be binding upon and inure to the benefit of the successors
and assigns of the parties to this Agreement. "Assign this Agreement" and
"assignment", as used in this Section 10.8, shall mean any sale, assignment,
pledge, hypothecation, gift or other Transfer of all or any portion of the
rights, obligations or liabilities contained in or arising from this
Agreement to any Person, whether by operation of law or otherwise, and
regardless of the legal form of the transaction in which the attempted
Transfer takes place.
10.9 WAIVER. Waiver of any term or condition of this Agreement by any
party shall not be construed as a waiver of a subsequent breach or failure of
the same term or condition, or a waiver of any other term or condition of
this Agreement.
10.10 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
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10.11 INJUNCTIVE RELIEF. Purchaser, on the one hand, and Seller, on the
other, acknowledge and agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is therefore agreed
that the parties shall be entitled to an injunction or injunctions to prevent
or cure breaches of the provisions of this Agreement and to enforce specific
performance of the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to
any other remedy to which they may be entitled at law or in equity.
10.12 TERMINATION OR SUSPENSION OF CERTAIN OBLIGATIONS. The provisions
of Articles 8 and 9 shall not be binding upon Purchaser or any Investor
Entity as of any time Purchaser and the Investor Entities, taken together,
beneficially own Voting Stock representing less than 2% or more than 50% of
the Total Voting Power, but shall again be binding and of full force and
effect at any time Purchaser and the Investor Entities, taken together, again
beneficially own Voting Stock representing 2% or more, but less than or equal
to 50%, of the Total Voting Power.
10.13 CONFIDENTIALITY. Each party agrees to maintain in confidence any
information which is clearly identified as confidential by the party
providing such information which it receives from the other party pursuant to
this Agreement. Such
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confidential information may include, but shall not be limited to,
information regarding proposed transferees which may be identified in a
notice under Article 9. Each party receiving such information agrees that it
will not directly or indirectly disclose or use for its own benefit (except
as provided in this Agreement) any such confidential information, except to
the extent (i) such information is publicly known or becomes publicly known
after disclosure hereunder through no fault of the recipient; (ii) such
information can be shown by the recipient to have been rightfully in its
possession prior to receipt thereof under this Agreement; (iii) such
information is received by the recipient from a third party having the
right to disclose such information without any obligation of confidentiality
to the disclosing party; or (iv) the disclosure of such information is
required by applicable law or regulation or is necessary to comply with or
fulfill governmental requirements, submissions to governmental bodies, or the
securing or regulatory approvals, or under the rules and regulations of,
applicable securities exchanges or the National Association of Securities
Dealers, Inc.
10.14 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart
were upon a single instrument. All counterparts shall be deemed an original
of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have executed this
Agreement as of the date set forth in the first paragraph of this Agreement.
SELLER: CETUS CORPORATION
By /s/ R.A. Fildes
-----------------------------
Title President
--------------------------
PURCHASER: HOFFMANN-LA ROCHE INC.
By /s/ [ILLEGIBLE]
-----------------------------
Title [ILLEGIBLE]
--------------------------
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Exhibit A
to Stock Purchase and Warrant Agreement
[FORM OF FIRST WARRANT CERTIFICATE]
THIS WARRANT AND THE WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). ANY SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION, GIFT, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES IS
INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSACTION OR UNLESS CETUS CORPORATION HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS UNNECESSARY IN
ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS
OF A STOCK PURCHASE AND WARRANT AGREEMENT, DATED MAY 9, 1989 BETWEEN CETUS
CORPORATION AND HOFFMANN-LA ROCHE INC. THE SECURITIES MAY NOT BE SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, GIFTED, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED FROM THE GENERAL COUNSEL OF CETUS CORPORATION. THIS IS THE "FIRST
WARRANT" REFERRED TO IN THE STOCK PURCHASE AND WARRANT AGREEMENT.
VOID AFTER 5:00 p.m. First Warrant to
San Francisco time, Purchase 500,000 Shares
on the expiration date specified of Common Stock
in Section 3.3(a) of the
Stock Purchase and
Warrant Agreement
FIRST WARRANT TO PURCHASE COMMON STOCK
OF CETUS CORPORATION
This Warrant Certificate certifies that HOFFMANN-LA ROCHE INC., a New
Jersey corporation ("Purchaser"), is the registered holder of the First
Warrant (the "First Warrant") issued pursuant to a Stock Purchase and Warrant
Agreement, dated May 9, 1989 (the "Agreement") between Purchaser and Cetus
Corporation, a Delaware corporation ("Seller"). This Warrant Certificate
evidences the right of Purchaser to purchase from Seller 500,000 shares (the
"Warrant Shares") of Seller's Common Stock at the exercise price (the
"Exercise Price") of $15.75 per share. Subject to the terms of the Agreement,
this First Warrant may be exercised upon surrender of this Warrant
Certificate, with the Election to Purchase attached hereto completed and duly
executed and accompanied by payment in cash or check, to Seller at its
principal office.
The Exercise Price and the number of Warrant Shares purchasable upon
exercise of this First Warrant are subject to
<PAGE>
adjustment upon the occurrence of certain events as set forth in the
Agreement. If this First Warrant is exercised for less than the total number
of Warrant Shares evidenced by this First Warrant, Seller shall execute and
deliver a new Warrant Certificate, dated the date of the Agreement,
evidencing the rights of the Warrantholder to purchase the balance of the
Warrant Shares purchasable under this First Warrant.
The Agreement is hereby incorporated by reference and made a part of
this Warrant Certificate as fully as though completely set forth herein. If
there is any inconsistency between the provisions of the Agreement and the
Warrant Certificate, the Agreement shall control. The Agreement should be
referred to for a complete description of the rights and obligations of
Seller and Purchaser and any direct or indirect transferee of Purchaser,
including, without limitation, matters relating to the determination of, and
provision of information about, Net Cetus IL-2 Product Sales. Capitalized
terms used in this Warrant Certificate and not otherwise defined herein shall
have the meanings given them in the Agreement.
Seller has caused this Warrant Certificate to be executed by its duly
authorized officer as of the date set forth in the first paragraph of the
Agreement.
CETUS CORPORATION
By
------------------------
Title
---------------------
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<PAGE>
FIRST WARRANT
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the
First Warrant (as defined in the Stock Purchase and Warrant Agreement, dated
May 9, 1989, (the "Agreement") between Cetus Corporation and Hoffmann-La
Roche Inc.) to purchase ________ shares of Cetus Corporation Common Stock
issuable upon the exercise of the First Warrant. By making such election, the
undersigned represents and warrants to Cetus Corporation that it (i) has
received a copy of and is familiar with the Agreement, under which the First
Warrant has been issued; (ii) acknowledges that the shares acquired upon
exercise of the First Warrant may not be transferred except as provided in
the Agreement; and (iii) acknowledges that such shares will bear the legends
set forth in the Agreement.
DATED: , 19
------------------ -- --------------------------------
(signature)
--------------------------------
(name and title)
--------------------------------
(print name of holder)
<PAGE>
Exhibit B
to Stock Purchase and Warrant Agreement
[FORM OF SECOND WARRANT CERTIFICATE]
THIS WARRANT AND THE WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). ANY SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION, GIFT, TRANSFER OR OTHER DISPOSITION OF SUCH SECURITIES IS
INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSACTION OR UNLESS CETUS CORPORATION HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT TO THE EFFECT THAT SUCH REGISTRATION IS UNNECESSARY IN
ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS
OF A STOCK PURCHASE AND WARRANT AGREEMENT, DATED MAY 9, 1989 BETWEEN CETUS
CORPORATION AND HOFFMANN-LA ROCHE INC. THE SECURITIES MAY NOT BE SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, GIFTED, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED FROM THE GENERAL COUNSEL OF CETUS CORPORATION. THIS IS THE "SECOND
WARRANT" REFERRED TO IN THE STOCK PURCHASE AND WARRANT AGREEMENT.
VOID AFTER 5:00 p.m. Second Warrant to
San Francisco time, Purchase 500,000 Shares
on the expiration date specified of Common Stock
in Section 3.3(b) of the
Stock Purchase and
Warrant Agreement
SECOND WARRANT TO PURCHASE COMMON STOCK
OF CETUS CORPORATION
This Warrant Certificate certifies that HOFFMANN-LA ROCHE INC., a
New Jersey corporation ("Purchaser"), is the registered holder of the Second
Warrant (the "Second Warrant") issued pursuant to a Stock Purchase and
Warrant Agreement, dated May 9, 1989 (the "Agreement") between Purchaser and
Cetus Corporation, a Delaware corporation ("Seller"). This Warrant
Certificate evidences the right of Purchaser to purchase from Seller 500,000
shares (the "Warrant Shares") of Seller's Common Stock at the exercise price
(the "Exercise Price") of $15.75 per share. Subject to the terms of the
Agreement, this Second Warrant may be exercised upon surrender of this
Warrant Certificate, with the Election to Purchase attached hereto completed
and duly executed and accompanied by payment in cash or check, to Seller at
its principal office.
The Exercise Price and the number of Warrant Shares purchasable
upon exercise of this Second Warrant are subject to
<PAGE>
adjustment upon the occurrence of certain events as set forth in the
Agreement. If this Second Warrant is exercised for less than the total
number of Warrant Shares evidenced by this Second Warrant, Seller shall
execute and deliver a new Warrant Certificate, dated the date of the
Agreement, evidencing the rights of the Warrantholder to purchase the balance
of the Warrant Shares purchasable under this Second Warrant.
The Agreement is hereby incorporated by reference and made a part
of this Warrant Certificate as fully as though completely set forth herein.
If there is any inconsistency between the provisions of the Agreement and the
Warrant Certificate, the Agreement shall control. The Agreement should be
referred to for a complete description of the rights and obligations of
Seller and Purchaser and any direct or indirect transferee of Purchaser,
including, without limitation, matters relating to the determination of, and
provision of information about, Net Cetus IL-2 Product Sales. Capitalized
terms used in this Warrant Certificate and not otherwise defined herein shall
have the meanings given them in the Agreement.
Seller has caused this Warrant Certificate to be executed by its
duly authorized officer as of the date set forth in the first paragraph of
the Agreement.
CETUS CORPORATION
By
-------------------------------------
Title
----------------------------------
-2-
<PAGE>
SECOND WARRANT
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the Second
Warrant (as defined in the Stock Purchase and Warrant Agreement, dated
May 9, 1989, (the "Agreement") between Cetus Corporation and Hoffmann-La Roche
Inc.) to purchase ___________ shares of Cetus Corporation Common Stock issuable
upon the exercise of the Second Warrant. By making such election, the
undersigned represents and warrants to Cetus Corporation that it (i) has
received a copy of and is familiar with the Agreement, under which the Second
Warrant has been issued; (ii) acknowledges that the shares acquired upon
exercise of the Second Warrant may not be transferred except as provided in the
Agreement; and (iii) acknowledges that such shares will bear the legends set
forth in the Agreement.
DATED: , 19
------------------ -- --------------------------------
(signature)
--------------------------------
(name and title)
--------------------------------
(print name of holder)
<PAGE>
CONFIDENTIAL
Schedule 4.3
4.3(i) Subscriptions, options, calls, rights, warrants, convertible
securities, unsatisfied preemptive rights or other commitments:
1. The information contained in the Financial Statements in
Seller's Annual Report to Stockholders for the fiscal year ended June 30, 1988
is incorporated herein by reference, including without limitation the
following notes to such financial statements: Note 5 (Debt obligations), 8
(Stock option plans), 9 (Employee stock purchase plan), and 10 (Common stock
warrants)
2. The following information sets forth the status of the Company's
stock option plans, employee stock purchase plan, warrants and convertible
debt as of April 21, 1989:
STOCK OPTION
Options outstanding: 3,838,080*
Remaining shares authorized for issuance under plans:
1,143,536*
EMPLOYEE STOCK PURCHASE PLAN
Remaining shares authorized for issuance under plan:
650,568*
WARRANTS
No changes from Note 10 in Annual Report.
Note: This does not take into account the issuance of
warrants to Roche pursuant to this Agreement.
CONVERTIBLE DEBENTURES
No changes from Note 5 in Annual Report
* Numbers approximate
<PAGE>
CONFIDENTIAL
Schedule 4.9
LITIGATION AND OTHER PROCEEDINGS
1. CHAPMAN v. CETUS CORPORATION, Superior Court, Alameda County No.
599442-7, claiming an alleged mutual mistake and fraud in connection with
Cetus' lease of property at 1400 and 1450 53rd Street, Emeryville,
California. The amended complaint requests relief in the form of a
reformation of the lease to include an annual cost of living adjustment in
the rent and punitive damages in the sum of $5,000,000. Both parties have
conducted extensive discovery.
2. THOMAS A. ROBERTS, JR., INDIVIDUALLY AND dba THOMAS A. ROBERTS, JR.
CONSULTING ENGINEER, dba THE TARCI COMPANY AND dba SANTA CLARA WIRE; V.E.
CORPORATION v. CETUS CORPORATION AND DOE ONE THROUGH ONE HUNDRED, No. 588906,
Superior Court of the State of California, County of Santa Clara. In this
action, filed on August 31, 1987, plaintiffs seek relief for alleged breach
of written and oral agreements, misrepresentation, unjust enrichment, QUANTUM
MERUIT and negligence, in connection with a contract whereby Roberts was to
provide development services for the Cetus ProPette instrument. The relief
sought includes damages of $1,900,000, unspecified damages for mental and
emotional distress, exemplary damages of $7,500,000, damages of $117,000 for
labor and material and costs of suit. The Company's demurrer to the last
amended complaint was sustained without leave to further amend the complaint.
The plaintiffs filed a demand for arbitration with American Arbitration
Association on September 6, 1988, with a claim of $4,864,536.51 for breach of
contract, misrepresentation, unjust enrichment, QUANTUM MERUIT and rescission.
Selection of arbitrators is ongoing.
3. POTENTIAL ORGANON-TEKNIKA CLAIM. During a meeting on January 16,
1989 a representative of Organon Teknika asserted
<PAGE>
that the Company had agreed to license Organon to practice PCR technology in
the fields of diagnostics, food and veterinary applications and that if Cetus
does not grant the license, Organon would "put in a claim" for its time and
effort spent in negotiating with the Company, for punitive damages, for loss
of business anticipated through access to PCR technology and for the license.
The Company has advised Organon orally and in writing (on January 25, 1989) that
there is no contract between it and Organon providing for a PCR license to
Organon and no merit to its claim. Organon has not responded.
4. PERSONNEL-RELATED CLAIMS. There are two actions pending against the
Company by former employees based on alleged wrongful termination of
employment and related matters.
5. OLYMPUS CORPORATION v. CETUS CORPORATION. No. CV-89-0770, United
States District Court, Eastern District of New York. Complaint filed
March 9, 1989. Dispute relates to a Private Label Distribution Agreement
between Olympus and Cetus for distribution of Cetus' Pro Group product. The
parties have agreed in principle to settle this dispute without liability to the
Company. The Company expects to enter into a definitive settlement agreement
shortly.
<PAGE>
Exhibit 10.507
OPTION AGREEMENT
Agreement made as of the day of , 1983, by and between Cetus
Corporation ("Cetus") and the limited partner of Cetus Healthcare Limited
Partnership (the "Partnership") listed on Schedule A hereto (the "Limited
Partner").
RECITALS:
A. Pursuant to the Subscription Agreement and Investment
Representation between the Limited Partner and Cetus, the Partnership, Lehman
Brothers Kuhn Loeb Incorporated and Oppenheimer & Co., Inc., the Limited
Partner has subscribed for and agreed to acquire certain warrants (the
"Warrants") to purchase shares of Cetus Common Stock, in payment for which
the Limited Partner has agreed to grant Cetus the Purchase Option referred to
below.
B. Option Agreements substantially identical to this Agreement (the
"Option Agreements") are being executed by the other limited partners of the
Partnership.
NOW, THEREFORE, the parties agree as follows:
1. GRANT OF OPTION.
In consideration of the issuance and sale to the Limited Partner by
Cetus of the Warrants on the date hereof, the Limited Partner hereby grants
to Cetus an irrevocable option (the "Purchase Option") to purchase all of the
Limited Partner's interest in the Partnership.
2. TIME FOR EXERCISE.
The Purchase Option may be exercised at any time during the period
commencing on June 30, 1987 and expiring at the close of business on August
31, 1987. Cetus may exercise the Purchase Option with respect to the Limited
Partner's interest only if it exercises all of its purchase options granted
by all other limited partners of the Partnership under the Option Agreements.
3. MANNER OF EXERCISE.
Cetus may exercise the Purchase Option only by delivery to Cetus
Development Corporation (the "General Partner") or any successor general
partner of the Partnership, who is hereby authorized by the Limited Partner
to accept such delivery on its behalf, of (i) a notice of exercise and (ii)
two copies of an executed Purchase Agreement, dated as of the date of the
notice of exercise and substantially in the form attached hereto as Exhibit
A. The General Partner shall forward both copies of the Purchase Agreement to
the Limited Partner requesting that the Limited Partner execute both copies
and return one original to Cetus. Upon the delivery of the executed Purchase
Agreement by Cetus to the General Partner, the Purchase Agreement
automatically will be effective, without the necessity of any action on the
part of the General Partner or the Limited Partner or any further action on
the part of Cetus: provided, however, that Cetus shall not be obligated to
pay to the Limited Partner any amounts under the Purchase Agreement until
Cetus shall have received from the Limited Partner a Purchase Agreement
executed by the Limited Partner.
4. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which, when so executed, shall be deemed to be an original, and all of which,
when taken together, shall constitute this Agreement.
- -------------------
- - To be dated by the General Partner on and as of the Closing Date.
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<PAGE>
5. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California as applied to residents of that state
entering into contracts wholly to be performed in that state.
6. VALIDITY OF PROVISIONS, SEVERABILITY.
If any provision of this Agreement is or becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, (i) such provision will be
deemed amended to conform to applicable laws of such jurisdiction so as to be
valid and enforceable or, if it cannot be so amended without materially
altering the intention of the parties, it will be stricken, (ii) the
validity, legality and enforceability of such provision will not in any way
be affected or impaired thereby in any other jurisdiction, and (iii) the
remainder of this Agreement will remain in full force and effect.
7. AMENDMENTS.
No amendment, modification or addition hereto shall be effective or
binding unless set forth in a writing and executed by a duly authorized
representative of the party against whom such change is asserted.
8. HEADINGS.
The section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the parties.
9. ASSIGNMENT.
Cetus may not assign its rights hereunder without the prior written
consent of a majority in interest of the limited partners of the Partnership,
which consent may not be unreasonably withheld, except to a person or entity
(i) with which Cetus is merged or consolidated or which purchases all or
substantially all of the assets of Cetus or (ii) which purchases all or
substantially all of Cetus' human healthcare business, which assumes in
writing Cetus' obligations hereunder, and which has a net worth of at least
$250,000,000 at the date of such purchase. Any consent of a majority in
interest of the limited partners shall be binding on the Limited Partner,
whether or not the Limited Partner in fact consented.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CETUS CORPORATION
-----------------------------
President
-----------------------------
(Limited Partner)
- --------------------------
* The name, address and pro rata share of payments for each Limited Partner
will be listed on Schedule A to that Limited Partner's Option Agreement and
attached to that Limited Partner's Purchase Agreement.
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<PAGE>
EXHIBIT A
TO EXHIBIT I
PURCHASE AGREEMENT
AGREEMENT made as of the ___*___ day of _______*______, 1987, by and
between Cetus Corporation ("Cetus") and the limited partner of Cetus
Healthcare Limited Partnership ("the Partnership") listed on Schedule A
hereto (the "Limited Partner").
RECITALS:
A. Pursuant to an Option Agreement, the Limited Partner has granted to
Cetus an option (the "Purchase Option") to purchase the Limited Partner's
interest in Cetus Healthcare Limited Partnership (the "Partnership").
B. In accordance with the Option Agreement, Cetus has exercised the
Purchase Option and the parties are to execute this Agreement.
C. Purchase Agreements substantially identical to this Agreement (the
"Purchase Agreements") are being executed by the other limited partners of
the Partnership.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" shall mean a corporation or any other business entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, the designated party.
"Control" shall mean ownership of at least 50% of the shares entitled to vote
for the election of directors in the case of a corporation and at least 50%
of the beneficial interests in the case of a business entity other than a
corporation.
1.2 "Combination Product" shall mean a human diagnostic kit or reagent
or a product for the prevention, treatment or mitigation of disease in
humans that incorporates one or more Human Healthcare Products, Competing
Products or Interferon Products with one or more other human diagnostic kits
or reagents or human therapeutic products in respect of which Cetus is not
obligated to make payments to the Limited Partner hereunder.
1.3 "Competing Product" shall mean, on a country by country basis, a
product other than an Interferon System Agent or an Interferon Product (i)
that has the same primary therapeutic indication or primary human diagnostic
use as a Human Healthcare Product and (ii) that Cetus either (a) purchases or
licenses from a third party or (b) develops other than with Partnership
funds of $150,000 or more, in each case only if the efforts to complete the
corresponding Human Healthcare Product has not been abandoned under Section 7
hereof or under Section 2.5 of the Development Contract, and development of
such product by or on behalf of the Partnership has not been recommended,
prior to the date of such purchase or license or the commencement of such
development by Cetus. Under the foregoing, primary diagnostic use or primary
therapeutic indication shall mean (i) in the case of a Competing Product,
such use or indication as approved by the FDA or, if not yet approved by the
FDA, as approved by a comparable foreign regulatory authority and (ii) in the
case of all other products, as approved by the FDA or, if not yet approved by
the FDA, as approved by a comparable foreign regulatory authority or, if not
yet approved by any regulatory authority, as set forth in the corresponding
Product Development Program.
1.4 "Completion" of a product shall mean the obtaining of FDA approval
to market the product.
1.5 "Development Contract" shall mean the Restated Research and
Development Agreement between Cetus and the Partnership.
- ----------
* To be dated in accordance with Section 3 of the Option Agreement.
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<PAGE>
1.6 "FDA" shall mean the United States Food and Drug Administration and
each successor regulatory authority.
1.7 "Human Healthcare Product" shall mean a human diagnostic kit or
reagent or a product for the prevention, treatment or mitigation of disease
in humans that is not a Competing Product or an Interferon System Agent or
an Interferon Product and that is either (i) a Planned Product or
Substituted Product, or (ii) utilizes a specific molecular structure towards
the development of which at least $150,000 has been expended between April
15, 1983 and August 31, 1987 either (a) under its Product Development Program
or (b) otherwise by or on behalf of Cetus with Cetus' funds (but not third
party funds), or (iii) is actually Reduced to Practice prior to August 31,
1987 by or on behalf of the Partnership or Cetus (other than pursuant to an
agreement with a third party).
1.8 "Interferon Product" shall mean a product for the diagnosis,
treatment, prevention or mitigation of disease in humans that (i) has as an
active ingredient any material that is instrumental in achieving beneficial
results through mechanisms attributed to the human interferon system,
including, without limitation, interferons (including gamma interferon),
interferon-like substances, derivatives of interferons, inducers for the
production by the human body of interferons, and the like, (ii) toward the
development of which $150,000 or more of Partnership funds is expected
between April 15, 1983 and August 31, 1987 and (iii) that is marketed by
Cetus, its Affiliates or sublicensees.
1.9 "Interferon System Agent" shall mean any material that is
instrumental in achieving beneficial results through mechanisms attributed to
the human interferon system including, without limitation, interferons
(including gamma interferon), interferon-like substances, derivatives of
interferons, inducers for the production by the human body of interferons,
and the like, but excluding immunotoxins and molecules which are currently
described as lymphokines, such as Interleukin-2, Macrophage Activating
Factor, Tumor Necrosis Factor and Colony Stimulating Factor, unless such
molecules turn out to be interferons once isolated and analyzed.
1.10 "Net Sales" shall mean the amount received from commercial sales
(worldwide for diagnostic products and in the United States for therapeutic
products) after the date of this Agreement to independent, unrelated parties
in bona fide arm's-length transactions, less the following deductions: (i)
trade and/or quantity discounts actually allowed and taken in amounts as are
customary in the trade; (ii) commissions paid or allowed to independent
brokers and agents; (iii) sales and other excise taxes and duties paid,
absorbed or allowed; (iv) license, sublicense or distribution fees payable to
third parties in respect of the product; (v) amounts separately billed to
cover transportation costs; (vi) three percent of the amounts invoiced to
cover transportation costs, if such charges are not separately billed; (vii)
amounts repaid or credited by reason of rejections, defects or returns or
because of retroactive price reductions; and (viii) in the case of Competing
Products or products purchased or licensed by Cetus from third parties, an
amount equal to three times the amount of any periodic payments to any third
parties from whom such product was purchased or licensed and three times the
annual amortization, over the remaining estimated useful life of such
product, of any lump sum payments made to such third parties.
1.11 "Product License Agreement" shall mean any license agreement between
Cetus and the Partnership for the license of any Product.
1.12 All other capitalized terms shall have the meanings set forth in the
Development Contract.
2. PURCHASE AND SALE OF PARTNERSHIP INTEREST.
Effective as the date of exercise of the Purchase Option, Cetus hereby
purchases, and the Limited Partner hereby sells to Cetus, all of such Limited
Partner's interest in the Partnership.
3. PURCHASE PRICE; PAYMENT.
The purchase price for the Limited Partner's interest shall be as follows:
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<PAGE>
3.1 LUMP SUM PAYMENT. The Limited Partner's PRO RATA share, as set
forth on Schedule A, of nineteen million dollars ($19,000,000), payable upon
receipt by Cetus from the Limited Partner of an original of this Agreement
executed by the Limited Partner. Such payment shall be credited against all
payments due under the remainder of this Section 3 until the full amount of
such payment has been so credited; provided, however, that the total credit
taken hereunder in any calendar quarter shall not exceed 10% of the payments
otherwise due under this Section 3 for such quarter.
3.2 ADDITIONAL PAYMENTS. The Limited Partner's PRO RATA share of the
following:
(a) in the case of therapeutic products and in the case of
diagnostic products, of the Net Sales, from and after the date of this
Agreement, by Cetus and its Affiliates of all Human Healthcare Products,
Interferon Products and Competing Products.
(b) in the case of therapeutic products and in the case of
diagnostic products, of all royalties received by Cetus and its
Affiliates under any license for the manufacture, use or sale, after the
date of this Agreement, of Human Healthcare Products, Interferon
Products and Competing Products (worldwide for diagnostic products and
in the United States for therapeutic products).
(c) in the case of therapeutic products and in the case of
diagnostic products of any front-end fees, distribution fees, prepaid
royalties or similar one-time, infrequent or special payments received
by Cetus and its Affiliates and not included in (b) above, for the
manufacture, use or sale, after the date of this Agreement, of any Human
Healthcare Product, Competing Product or Interferon Product (worldwide
for diagnostic products and in the United States for therapeutic
products), but only to the extent that such payments are not designated
and used for research, development, testing or obtaining regulatory
approval of the Human Healthcare Product, Competing Product or
Interferon Product.
(d) Any payments not previously made (i) that were due on August
31, 1987 or which became due thereafter to the Partnership under any
Product License Agreement, at the same time and in the same amounts as
would have been payable under such Product License Agreement had it not
terminated on August 31, 1987 and (ii) any Excess Cash (as defined in
the Agreement of Limited Partnership, as amended, of the Partnership)
that had not been distributed on August 31, 1987 or such earlier date as
Cetus exercises the Purchase Option.
Notwithstanding Section 3.4, in the case of any Interferon Product, if Shell
Oil Company ("Shell") exercises its option to license such product pursuant
to the Agreement dated as of April 15, 1983 between Cetus and Shell, for
purposes of this Section 3.2 in determining Net Sales of, and the other
payments described in (b) and (c) above received by Cetus and its Affiliates
in respect of such product, such items shall be deemed to include,
respectively, Net Sales of, and such other payments received by, Shell and by
any joint venture between Cetus and Shell.
3.3 CERTAIN FOREIGN PAYMENTS. Notwithstanding the provisions of Section
3.2, if any therapeutic Human Healthcare Product is not approved for sale in
the United States, but is approved for sale in any other country, payments
shall be made to the Limited Partner in respect of such product in such
country at one-half the rates set forth in Section 3.2; provided, however,
that payments of the type described in Section 3.2(c) shall be amortized over
a five year period from the date of the payment and paid only for months
before the month in which foreign payments in respect of the product become
no longer payable. However, once such therapeutic Human Healthcare Product is
approved for sale in the United States, all payments in respect of such
product in countries other than the United States shall cease, and payments
shall be made solely in respect of such product in the United States;
provided, however, that in the case of Interleukin-2, the payments described
in the first sentence of this Section 3.3 shall continue until such time as
payments to the Limited Partner in respect of United States sales by Cetus
and United States sublicensing and other payments received by Cetus in
respect of Interleukin-2 for any quarter equal or exceed the payments made by
Cetus to the Limited Partner in respect of foreign sales made by Cetus and
foreign sublicensing and other payments received by Cetus in respect of
Interleukin-2 for the quarter in which FDA approval to market the product was
granted.
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<PAGE>
3.4 JOINT VENTURES. If Cetus or any of its Affiliates commercializes a
Human Healthcare Product, Interferon Product or Competing Product through a
joint venture arrangement with an unrelated third party or parties, any joint
venture Net Sales of such product made directly by Cetus or any Affiliate
shall be deemed for purposes of Section 3.2 to be Net Sales of Cetus, and all
amounts received by Cetus or such Affiliate in respect of its interest in
such joint venture from such product (other than amounts attributable to Net
Sales made directly by Cetus or such Affiliate) shall be deemed for purposes
of Section 3.2 to be sublicensing royalties received by Cetus.
3.5 CREDITS AGAINST PAYMENTS DUE. Notwithstanding the foregoing, Cetus
shall receive, as a credit against payments otherwise due in respect of any
product in any country other than the United States an amount equal to 50% of
Cetus' and its Affiliates' costs and expenses of obtaining regulatory
approval of such product in such country; provided, however, that in the case
of a therapeutic product, such amounts shall be amortized over a five year
period and credited only through the month during which foreign payments in
respect of the product become no longer payable. In each case, such credit
shall not exceed in any calendar year more than 25% of the payments otherwise
due in respect of such product in such country, with any balance being
carried over to subsequent years.
3.6 COMBINATION PRODUCTS. Notwithstanding Sections 3.2 and 3.3, in
respect of Combination Products, the payments to be made by Cetus under
Section 3.2 or 3.3 shall be prorated on the basis of the relative values of
the various component products of the Combination Product, in each case
taking into consideration, without limitation, relative cost of goods,
relative sales prices if the components were sold separately, incremental
diagnostic or therapeutic value of each component, relative prices of
products competitive with the various components and relative profit margins
of the various components if sold separately. If a majority in interest of
the limited partners disagree with any proration by Cetus, the matter shall
be submitted to arbitration in accordance with Section 10 hereof.
3.7 INTEREST. The parties agree that each payment received under
Sections 3.2(a), (b) and (c) and Section 3.3 includes simple interest at a
rate of 9% per annum from the date of this Agreement.
3.8 REDUCTION IN PAYMENT RATES. Notwithstanding the remainder of this
Section 3, if and when the aggregate of all payments to the limited partners
(or their assignees) made under this Agreement and all other Purchase
Agreements and from the Partnership in respect of royalties and other
payments received from all Product License Agreements between Cetus and the
Partnership aggregate all of the payment rates under Section 3 shall be
reduced to of Net Sales and of all other payments described in
Section 3; and if and when all such payments aggregate all of such
payment rates shall be reduced to of Net Sales and of all other
payments described in Section 3; provided, however, that if such payments
under this Agreement and all other Purchase Agreements and all Product
License Agreements do not aggregate on or before then the first
reduction described above will not occur until such payments aggregate
; and if the payments under this Agreement and such other agreements do not
aggregate on or before then the second reduction described above
will not occur until such payments aggregate .
4. TERM OF PAYMENTS.
Notwithstanding any other provision of this Agreement, the obligation to
make payments under this Agreement in respect of sales of any product shall
continue until the earlier of (i) the expiration of the last to expire of all
patents covering the product (but only if such product is covered by a
patent) and (ii) December 31, 2001.
5. ACCOUNTING.
Within 90 days after the close of each calendar quarter during the term
of this Agreement, Cetus shall render an accounting to the Limited Partner
with respect to all payments due and all credits taken for such quarter. Such
report shall indicate for such calendar quarter the quantity and amount of
sales of each product by Cetus, its Affiliates and sublicensees on which
payments are due hereunder; provided, however, that if Cetus shall not have
received from any sublicensee a report of such sales, then such sales may be
included in the next quarterly report. In addition, Cetus will provide the
Limited Partner with a brief
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<PAGE>
summary of the manner in which payments have been prorated under Section 3.5.
In case no payment is due for any calendar quarter, Cetus shall so report.
Cetus shall keep accurate records in sufficient detail to enable its payments
due hereunder to be determined.
6. TIME AND CURRENCY OF PAYMENT.
6.1 PAYMENTS. Payments shown by each calendar quarter report to
have accrued shall be due and payable on the date such report is due and
shall be paid in United States dollars. Any and all taxes due or payable on
such payments or with respect to the remittance thereof, and required by law
to be paid by Cetus, shall be deducted from such payments and shall be paid
by Cetus to the proper taxing authorities. Proof of such payments shall be
secured and sent to the Limited Partner as evidence of payment. The rate of
exchange to be used in computing the amount of the United States dollars due
in satisfaction of payment obligations with respect to foreign countries, if
any, shall be calculated at the exchange rate set by Citibank, N.A., New
York, New York for the purchase of United States dollars with respect to the
currency of the country of origin of such payment on the last business day of
the calendar quarter for which the payment is made. Settlement of payment
obligations shall be made by check.
6.2 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent
remittance from any foreign country of amounts due under Section 3 in respect
of that country, Cetus shall so notify the Limited Partner in writing, and
subject to the remainder of this Section 6.2, the obligation under this
Agreement to make payments in respect of sales in that country shall be
suspended (but the amounts due but not paid shall continue to accrue) until
such remittances are possible; provided, however, that to the extent Cetus
invests its own blocked funds in passive investments in such country or
liquidates its own blocked funds at available rates, Cetus shall do the same
with the Limited Partner's blocked funds. In addition, on or before December
31 of each calendar year. Cetus shall liquidate any blocked funds of the
Limited Partner at available rates and pay any amounts received on
liquidation to the Limited Partner. Cetus shall in any event liquidate all
such amounts and pay all amounts received as soon as practicable after
December 31, 2001. All payments by Cetus under this Section 6.2 shall be
deemed to be payment in full of the amounts so paid or liquidated, and Cetus
shall have no liability to the Limited Partner for any actions taken in
accordance with this Section 6.2.
6.3 LATE PAYMENTS. Any payments due hereunder that are not made
when due shall bear interest at the lesser of 15% per annum or the maximum
rate as may be allowed by law.
7. COMPLETION AND COMMERCIALIZATION OF PRODUCTS.
Cetus agrees to Complete all Planned Products and Substituted
Products; provided that, if Cetus determines in its reasonable business
judgment that Completion of any such product is not technically feasible or,
if Completed, the product will have insufficient commercial value to the
limited partners as a group (assuming for this purpose the limited partners
were to pay all amounts necessary to Complete such product) because of
anticipated Completion costs, including costs of funds, or market or other
factors affecting the possible commercialization of such product, Cetus may
abandon its efforts to Complete such product. Cetus will use its best
efforts, and will require its sublicensees to use their best efforts, in each
case within the standards of commercial reasonableness, to commercialize each
Human Healthcare Product and Interferon Product; provided that, if Shell
exercises its option to license any such Interferon Product referred to in
Section 3.2, Cetus shall only be required to use its best efforts to require
Shell to comply with the provisions of such license.
8. PATENT INFRINGEMENT.
If a third party infringes, by the manufacture or sale of a product
competitive with a Human Healthcare Product (in the United States for a
therapeutic product or in any country for a diagnostic product) any patent
covering any Human Healthcare Product, Cetus shall have the sole right, at
its own expense, to bring legal action to restrain such infringement and for
damages. The parties shall share in any recovery from any such action as
follows: (i) first 100% to Cetus to the extent of its costs and expenses,
including attorneys' fees, of the action and (ii) thereafter, ninety percent
(90%) to Cetus and ten percent (10%) to the limited partners PRO RATA.
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9. EFFECTIVE DATE AND TERM.
This Agreement will become effective on the day and year first above
written in accordance with Section 9.3 of the Partnership Agreement and shall
remain in full force and effect until December 31, 2001.
10. ARBITRATION.
10.1 DISPUTES. If any dispute arises out of this Agreement, the
parties will endeavor to settle such dispute amicably. The Limited Partner
acknowledges that this Agreement is identical (except as to Schedule A) to
the agreements between Cetus and the other limited partners of the
Partnership. The Limited Partner agrees that if any dispute arises under this
Agreement, the Limited Partner will confer with the other limited partners
and will agree to settle such dispute in such manner as may be agreed to by a
majority in interest of the limited partners. The Limited Partner agrees to be
bound by any such settlement.
10.2 ARBITRATION. If the parties shall fail to settle any dispute
in accordance with Section 10.1, such dispute shall be finally settled by
arbitration conducted in San Francisco, California in accordance with the
then existing rules of the American Arbitration Association, subject to
Section 10.3, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. In the case of any
such arbitration, a representative (the "Representative") shall be appointed
by a majority in interest of the limited partners. The parties hereby agree
that service of any notices in the course of such arbitration at their
respective addresses as provided for in Section 11 shall be valid and
sufficient.
10.3 ARBITRATION. In any arbitration pursuant to Section 10.1, the
award shall be rendered by a majority of the members of a board of
arbitration consisting of three members, all of whom will be appointed by
Cetus and the Representative jointly or, if Cetus and the Representative
cannot agree as to three arbitrators within 30 days after commencement of the
arbitration proceeding, one arbitrator shall be appointed by each of them
within 45 days after the commencement of the arbitration proceeding, and the
third shall be appointed by mutual agreement of the two appointed
arbitrators. In the event of failure of said two arbitrators to agree upon
the third arbitrator within 75 days after commencement of the arbitration
proceeding, the third arbitrator shall be appointed by the American
Arbitration Association in accordance with its then existing rules.
Notwithstanding the foregoing, if Cetus or the Representative shall fail to
appoint an arbitrator within the specified time period, such arbitrator as
well as the third arbitrator shall be appointed by the American Arbitration
Association in accordance with its then existing rules. For the purposes of
this Section 10.3 the "commencement of the arbitration proceeding" shall be
deemed to be the date upon which a written demand for arbitration is received
by one party from the other. The decision of the Representative shall be
final and binding on each Limited Partner.
11. NOTICES.
Any notice, payment or other communication required or permitted to
be given hereunder shall be given in writing and shall be delivered by hand
or by registered or certified mail, postage prepaid and return receipt
requested, addressed to the Limited Partner at the address set forth on
Schedule A hereto and to Cetus at the address set forth below, or such other
address as may be designated by either party by notice pursuant to this
Section 11.
If to Cetus:
Cetus Corporation
1400 Fifty-third Street
Emeryville, California 94608
Attention: President
Any notice given in conformity with this Section 11 shall be deemed to be
effective when received by the addressee, if delivered by hand, and five days
after mailing, if mailed. The Limited Partner will notify Cetus in writing of
any change of address of the Limited Partner, and Cetus shall be entitled to
rely on the last address so given in making payments hereunder.
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12. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which, when so executed, shall be deemed to be an original, and all of which,
when taken together, shall constitute this Agreement.
13. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California as applied between residents of that State
entering into contracts wholly to be performed in that State.
14. VALIDITY OF PROVISIONS, SEVERABILITY.
If any provision of this Agreement is or becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, (a) such provision will be
deemed amended to conform to applicable laws of such jurisdiction so as to be
valid and enforceable or, if it cannot be so amended without materially
altering the intention of the parties, it will be stricken, (b) the validity,
legality and enforceability of such provision will not in any way be affected
or impaired thereby in any other jurisdiction, and (c) the remainder of this
Agreement will remain in full force and effect.
15. AMENDMENTS.
No amendment, modification or addition hereto shall be effective or
binding unless set forth in a writing and executed by a duly authorized
representative of each party.
16. ASSIGNMENT.
Cetus may not assign its rights hereunder without the prior written
consent of a majority in interest of the Limited Partners, which consent
shall not be unreasonably withheld, except to a person or entity (i) with
which Cetus is merged or consolidated or which purchases all or substantially
all of its assets or (ii) which purchases all or substantially all of Cetus'
human healthcare business, which assumes in writing all of Cetus' obligations
hereunder, and which has, on the date of the purchase, a net worth of at
least $250,000,000. Any consent of a majority in interest of the limited
partners shall be binding on the Limited Partner, whether or not the Limited
Partner in fact consented.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
CETUS CORPORATION
By:
-------------------------------------
President
-------------------------------------
(Limited Partner)
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SCHEDULE A
LIMITED PARTNER PRO RATA SHARE
NAME AND ADDRESS OF PAYMENTS
---------------- --------------
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<PAGE>
Exhibit 10.508
OPTION AGREEMENT
Agreement made as of the 30th day of December, 1986, by and between
Cetus Corporation ("Cetus") and the limited partner of Cetus Healthcare
Limited Partnership II, a California limited partnership (the "Partnership")
listed on Schedule 1 hereto (the "Limited Partner").
RECITALS
A. The Partnership desires to enter into a Technology License
Agreement with Cetus. In order to induce Cetus to enter into the Technology
License Agreement with the Partnership, the Limited Partner is willing to
enter into this Agreement with Cetus.
B. Option agreements (the "Option Agreements") are being executed by the
other limited partners of the Partnership admitted to the Partnership on the
date hereof and have been or will be executed by all limited partners of the
Partnership.
NOW, THEREFORE, the parties agree as follows:
1. GRANT OF OPTION.
The Limited Partner hereby grants to Cetus an irrevocable option (the
"Purchase Option") to purchase all of the Limited Partner's interest in the
Partnership.
2. TIME FOR EXERCISE.
The Purchase Option may be exercised at any time during the period
commencing on December 15, 1990 and expiring at the close of business on
January 15, 1991. Cetus may exercise the
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* To be dated by the General Partner on and as of the date on which the
Limited Partner purchases the limited partnership interests covered by
this Agreement.
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<PAGE>
Purchase Option under this Agreement only if it exercises all of its
purchase options granted by all other limited partners of the Partnership
under the other Option Agreements.
3. MANNER OF EXERCISE.
Cetus may exercise the Purchase Option only by delivery to Cetus
Development Corporation (the "General Partner") or any successor general
partner of the Partnership, who is hereby authorized by the Limited Partner
to accept such delivery on its behalf, of (i) a notice of exercise and (ii)
two copies of an executed Purchase Agreement, dated as of the date of the
notice of exercise, and substantially in the form attached hereto as Exhibit
A or Exhibit B. The Purchase Agreement shall be in the form of Exhibit A if,
pursuant to his election form to be sent by Cetus to the Limited Partner in
1987, the Limited Partner has elected a cash only lump sum payment upon
exercise of the Purchase Option. The Purchase Agreement shall be in the form
of Exhibit B if, pursuant to his election form to be sent by Cetus to the
Limited Partner in 1987, the Limited Partner (or his predecessor) has elected
an all stock or part cash/part stock lump sum payment upon exercise of the
Purchase Option. The undersigned acknowledges that he will be required to
complete an election form with respect to the nature of the lump sum Purchase
Option payment and the undersigned agrees and acknowledges that if he does
not properly make such election within the proper time period he will be
deemed to have selected the all cash option. In either case, Cetus shall have
completed Sections 3.2(a)(i), 3.2(a)(ii)(y), 3.2(b)(i) and
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<PAGE>
3.2(b)(ii)(y) in accordance with Schedule 2 attached hereto. The General
Partner shall forward two copies of the Purchase Agreement to the Limited
Partner, at the Limited Partner's address set forth in the Partnership's
records, requesting that the Limited Partner execute both copies and return
one original to Cetus. Upon the delivery of the executed Purchase Agreement
by Cetus to the General Partner, the Purchase Agreement automatically will be
effective, without the necessity of any action on the part of the General
Partner or the Limited Partner or any further action on the part of Cetus;
provided, however, that Cetus shall not be obligated to pay to the Limited
Partner any amounts under the Purchase Agreement until Cetus shall have
received from the Limited Partner a Purchase Agreement executed by the
Limited Partner.
4. COVENANTS OF CETUS.
Cetus covenants and agrees with the Limited Partner as follows:
(a) Cetus shall, at all times until the exercise or other
termination of the Purchase Option, reserve for issuance and delivery
upon exercise of this Purchase Option, the number of shares of Common
Stock, if any, (the "Shares") as shall be required for issuance and
delivery upon exercise of this Purchase Option;
(b) Cetus has filed with the Securities and Exchange Commission
(the "SEC") a registration statement under the Securities Act of 1933,
as amended (the "Act"), with respect to the Shares, and shall prepare
and file with the SEC such
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<PAGE>
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective until after the exercise of the
Purchase Option;
(c) Cetus shall register or qualify the Shares under the
securities or Blue Sky laws of each jurisdiction in which such
registration or qualification is necessary in connection with the
issuance and delivery of the Shares upon exercise of the Purchase Option;
(d) Cetus shall pay all expenses incurred by Cetus in complying
with this Section 4, including, without limitation, (i) registration and
filing fees, (ii) printing expenses, (iii) fees and disbursements of
counsel and independent public accountants for Cetus, (iv) Blue Sky fees
and expenses (including fees and expenses of counsel in connection with
any Blue Sky surveys), and (v) the cost of any special audits incident to
or required by any such registration; and
(e) If the Common Stock is listed on a national securities
exchange, Cetus shall list the Shares on such exchange, in compliance
with the rules thereof, upon official notice of issuance thereof.
5. NO CONFLICT.
Each party agrees that it will not enter into any agreement, arrangement
or understanding that conflicts, or could conflict, with the rights of the
other party hereunder.
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<PAGE>
6. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which, when so executed, shall be deemed to be an original, and all of which,
when taken together, shall constitute this Agreement.
7. GOVERNING LAW; CHOICE OF FORUM.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California as applied to residents of that state
entering into contracts wholly to be performed in that state. The parties
agree that any dispute arising in connection with this Agreement shall be
resolved in the state or federal courts located in San Francisco, California.
8. VALIDITY OF PROVISIONS, SEVERABILITY.
If any provision of this Agreement is or becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, (i) such provision will be
deemed amended to conform to applicable laws of such jurisdiction so as to be
valid and enforceable unless it cannot be so amended without materially
altering the intention of the parties, in which event it will be stricken,
(ii) the validity, legality and enforceability of such provision will not in
any way be affected or impaired thereby in any other jurisdiction, and (iii)
the remainder of this Agreement will remain in full force and effect.
9. AMENDMENTS.
No amendment, modification or addition hereto shall be effective or
binding unless set forth in a writing and executed by
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<PAGE>
a duly authorized representative of the party against whom such change is
asserted.
10. HEADINGS.
The section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the parties.
11. ASSIGNMENT.
Cetus may not assign its rights and obligations hereunder without the
prior written consent of a majority in interest of the limited partners of
the Partnership, which consent may not be unreasonably withheld; provided,
however, that Cetus may assign such rights and obligations hereunder to a
person or entity (i) which controls, is controlled by or is under common
control with Cetus, (ii) with which Cetus is merged or consolidated or which
purchases all or substantially all of the assets of Cetus or (iii) which
purchases or licenses all or substantially all of Cetus' rights to the
Products (as defined in the Purchase Agreement) in Europe, and, in either
case, which assumes in writing Cetus' obligations hereunder. Any consent of a
majority in interest of the limited partners shall be binding on the Limited
Partner, whether or not the Limited Partner in fact consented. For purposes
of this Section 11, "control" shall mean ownership of more than 50 percent of
the shares of stock entitled to vote for the election of directors in the
case of a corporation, and more than 50 percent of the beneficial interest in
the case of a business entity other than a corporation; and "a majority in
interest of the
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<PAGE>
limited partners" shall mean limited partners of the Partnership who made
(or whose predecessors made) cash contributions to the Partnership of more
than 50 percent of the cash contributions to the Partnership of all limited
partners, excluding, for this purpose, the General Partner or Cetus to the
extent that either of them is a limited partner.
12. BINDING ON SUCCESSORS.
This Agreement shall be binding on, and shall inure to the benefit
of, all successors and assigns of the parties, including, without limitation,
in the case of Cetus, any person or entity which acquires all or
substantially all of the assets of Cetus.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CETUS CORPORATION
/s/ Michael S. Ostrach
--------------------------------
Michael S. Ostrach
Senior Vice President
--------------------------------
(Limited Partner)
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<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of $4,566.50
Name and Address of Limited Partnership
Limited Partner* Interests to be Purchased*
------------------- --------------------------
<S> <C>
</TABLE>
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* The name, address and number of limited partnership interests (expressed
in units of $4,566.50) owned by each Limited Partner will be listed on
Schedule A to that Limited Partner's Option Agreement and attached to that
Limited Partner's Purchase Agreement.
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<PAGE>
SCHEDULE 2
The payment rates to be added by Cetus to the Purchase Agreement as described
in Section 3 will be computed by Cetus in accordance with the following
formulae:
1. If there are six Planned Products:
Payment Rate = 8 + (a/25,000,000 x 4)
where "a" equals (i) "Gross Proceeds" minus (ii) $75,000,000.
2. If there are five Planned Products:
Payment Rate = 4.5 + (b/25,000,000 x 3.1)
where "b" equals (i) "Gross Proceeds" minus (ii) $50,000,000.
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* For this purpose, "Gross Proceeds" means the gross proceeds (before any
expenses) to Cetus Corporation and the Partnership from the Offering
described in the Prospectus of the Partnership and Cetus dated ______, 1986.
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<PAGE>
EXHIBIT A TO
OPTION AGREEMENT
(CASH ONLY)
PURCHASE AGREEMENT
AGREEMENT made as of the____*____ day of____ *____,199_, by and between
Cetus Corporation ("Cetus") and the limited partner of Cetus Healthcare Limited
Partnership II, a California limited partnership (the "Partnership") listed
on Schedule A hereto (the "Limited Partner").
RECITALS
A. Pursuant to an Option Agreement, the Limited Partner has granted to
Cetus an option (the "Purchase Option") to purchase the Limited Partner's
interest in the Partnership.
B. In accordance with the Option Agreement, Cetus has exercised the
Purchase Option and the parties are to execute this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" shall mean a corporation or any other business entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, the designated party.
"Control" shall mean ownership of more than 50 percent of the shares entitled
to vote for the election of directors in the case of a corporation and more
than 50 percent of the beneficial interests in the case of a business entity
other than a corporation.
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* To be dated in accordance with Section 3 of the Option Agreement.
<PAGE>
1.2 "Closing Date" shall mean the date on which the Limited Partner
actually purchased his or her interest in the Partnership pursuant to a
closing.
1.3 "Combination Product" shall mean a product for the prevention,
treatment or mitigation of disease in humans that incorporates any Product
with one or more other human therapeutic products that is not a Product.
1.4 "Development Contract" shall mean the Development and Clinical
Agreement between Cetus and the Partnership dated as of December 1, 1986.
1.5 "Development Costs" shall mean Cetus' direct and indirect costs, as
described on Schedule B, incurred in the development of Products under the
Development Contract and, in the case of Substituted Products, after
termination of the Development Contract.
1.6 "Excess Cash" shall mean all cash remaining in the Partnership on
the date the Purchase Option is exercised, less reserves for repayment of any
Partnership indebtedness and expenses incurred before the date the Purchase
Option is exercised.
1.7 "Europe" shall mean the countries listed on Schedule C hereto.
1.8 "Interest" shall mean an interest in the Partnership originally
purchased for $4,566.50 (or $3653.20 in the case of an Individual Retirement
Account).
1.9 "Limited Partner's Fraction" shall mean a fraction, the numerator
of which is the original purchase price paid to the
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<PAGE>
Partnership for the Interests owned by the Limited Partner immediately before
the exercise of the Purchase Option, and the denominator of which is the
total original purchase price paid to the Partnership for the Interests owned
by all Limited Partners immediately before the exercise of any purchase
option granted by any Limited Partners.
1.10 "Limited Partners" shall mean all of the limited partners of the
Partnership.
1.11 "Majority in Interest" means Limited Partners holding Interests,
for which the original purchase price paid to the Partnership exceeded 50% of
the total original purchase price paid to the Partnership for the Interests
held by all Limited Partners on the date the Purchase Option is exercised,
excluding the General Partner of the Partnership or Cetus to the extent
either or both of them holds Interests on that date.
1.12 "Major Market Country" shall mean any one of France, Italy, the
United Kingdom and West Germany.
1.13 "Marketing Agreement" shall mean the Manufacturing and Marketing
Agreement between Cetus and the Partnership dated as of December 1, 1986.
1.14 "Net Sales" shall mean the commercial sales in Europe after the
date of this Agreement to independent, unrelated parties in bona fide
arm's-length transactions, less the following deductions: (i) trade and/or
quantity discounts actually allowed and taken in such amounts as are
customary in the trade; (ii) commissions paid or allowed to independent
brokers and agents;
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<PAGE>
(iii) sales and other excise taxes and duties paid, absorbed or allowed; (iv)
license, sublicense or distribution fees payable to third parties (other than
to Cetus or Cetus Healthcare Limited Partnership or its partners or any
payments to the Limited Partners); (v) amounts billed to cover transportation
costs; (vi) three percent of the total amounts invoiced to cover
transportation charges, if any such charges are not separately billed; and
(vii) amounts repaid or credited by reason of rejections, defects or returns
or because of retroactive price reductions and allowances for bad debts. Any
deduction which could fall within more than one of the above clauses of this
Section 1.14 shall only be counted in one such clause.
1.15 "Other Income" shall mean (i) periodic payments received by Cetus
or any of its Affiliates under any license or sublicense for the sale of any
Product in Europe, (ii) front-end fees, distribution fees, prepaid royalties
and similar one-time, infrequent or special payments received by Cetus or any
of its Affiliates for the sale of a Product in Europe and (iii) Cetus' and
its Affiliates' profits arising from any joint venture between Cetus or one
of its Affiliates and one or more third parties for the sale of Products in
Europe by such third party or joint venture or from any agreement under
which Cetus or one of its Affiliates manufactures Products for sale in Europe
by a third party at a price in excess of Cetus' or such Affiliates' actual
fully burdened manufacturing costs of such Products determined in a manner
consistent with generally accepted accounting principles and Cetus'
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<PAGE>
then-current accounting policies. Other Income shall not include any amounts,
if any, payable to any third party who is not an Affiliate of Cetus, with
respect to any sublicensing or joint venture arrangement involving the
Products. Any payment to Cetus or any of its Affiliates which falls within
the definition of Other Income shall only be counted as Other Income one
time, even if it could, by definition, fall within more than one clause of
this Section 1.15. Any payment included in Net Sales shall not be included in
Other Income.
1.16 "Partnership Funds" shall mean the amounts paid by the Partnership
to Cetus under the Development Contract.
1.17 "Planned Product" shall mean one of the products listed and
described on Schedule D hereto.
1.18 "Product" shall mean a Planned Product or a Substitute Product.
1.19 "Substitute Product" shall mean a product substituted for a Planned
Product in accordance with Section 3.4(b) of the Development Contract and
listed and described by the General Partner as a Substitute Product on
Schedule E.
2. PURCHASE AND SALE OF PARTNERSHIP INTEREST.
Cetus hereby purchases, and the Limited Partner hereby sells to Cetus,
all of the Limited Partner's Interests in the Partnership.
3. PURCHASE PRICE; PAYMENT.
The purchase price for the Limited Partner's interest shall be as
follows:
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<PAGE>
3.1 LUMP SUM PAYMENT. A lump sum payment, which shall be paid in all
cash as follows: A total of $2,250 for each Interest owned by the Limited
Partner immediately prior to the exercise of the Purchase Option, payable
upon receipt by Cetus from the Limited Partner of an original of this
Agreement executed by the Limited Partner. Such payment shall be credited
against all payments due, or that may become due, under the remainder of this
Agreement until the full amount of such payment has been so credited;
provided, however, that the total credit taken under this Section 3.1 for any
calendar quarter shall not exceed 18 percent of the payments otherwise due
under this Agreement (before taking account of any credits taken or allowed
under this Agreement) for such quarter.
3.2 ADDITIONAL PAYMENTS. The Limited Partner's Fraction of the following
payments:
(a) PLANNED PRODUCTS.
(i) ________(1) percent of the Net Sales of the Products by
Cetus and its Affiliates from and after the date of this Agreement; and
(ii) on a Planned Product-by-Planned Product basis, and to the
extent not included in clause (i) above, the lesser of (x) 50 percent of
any Other Income received by Cetus and its Affiliates in respect of the
Planned Product from and after the date of this Agreement and (y)
________(1) percent of the Net Sales of the Product by any party other
than Cetus or its Affiliates.
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(1) To be completed by Cetus in accordance with Schedule 2 to the Option
Agreement.
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<PAGE>
(b) SUBSTITUTE PRODUCTS. A payment equal to the product of the
percentage set forth below, multiplied by a fraction, the numerator of which
is the total Partnership Funds paid under the Development Contract with
respect to the Substitute Product and the Planned Product for which the
Substitute Product was substituted under the Development Contract (and any
intervening Substitute Product), and the denominator of which is the total
Partnership Funds paid under the Development Contract with respect to the
Planned Product for which the Substitute Product was substituted and any
intervening Substitute Product plus 40 percent of the total funds spent on
the Substitute Product (and any intervening Substitute Product) through
regulatory and pricing approval in a Major Market Country, in each case
through the period for which the payments are being calculated.
(i) __________(2) percent of the Net Sales by Cetus
and its Affiliates of the Substitute Products from and after the date of this
Agreement; and
(ii) on a Substitute Product by Substitute Product
basis and to the extent not included in clause (i) above, the lesser of (x)
50 percent of any Other Income received by Cetus and its Affiliates in
respect of the Substitute Product from and after the date of this Agreement
and (y) _________(2) percent of the Net Sales of the Product by any party other
than Cetus or its Affiliates.
- ------------------
(2) To be completed by Cetus in accordance with Schedule 2 to the Option
Agreement.
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<PAGE>
(c) OTHER PAYMENTS. Cetus shall also pay to the Limited
Partner, at the same time as otherwise would have been payable under the
Marketing Agreement in respect of activities up to the date on which
the Purchase Option was exercised, an amount equal to the Limited
Partner's Fraction of (i) amounts that were due (and unpaid) on the date
the Purchase Option was exercised or which thereafter became due to the
Partnership under the Marketing Agreement, and (ii) any Excess Cash.
3.3 DESIGNATED PAYMENTS. Notwithstanding anything else contained in this
Agreement, the Limited Partner shall not be entitled to any of the types of
payments described in Section 3.2 to the extent that such payments are
designated and used on or after the payment date for research, development,
testing or obtaining regulatory approvals of any Product.
3.4 CERTAIN UNITED STATES PAYMENTS. Notwithstanding the provisions of
Section 3.2, but subject to Section 3.3, beginning on the date set forth on
Schedule F opposite each Planned Product, payments shall be made to the
Limited Partner with respect to such Planned Product in an amount equal to
the Limited Partner's Fraction of two percent of net sales (defined as in
Section 1.14 without reference to Europe) of the Planned Product by Cetus and
its Affiliates in the United States. Notwithstanding any other provision of
this Agreement, the payments described in this Section 3.4 shall be made
until such time as the Limited Partner has received, in the aggregate,
payments from the Partnership and Cetus totalling $5,000 per Interest.
Thereafter, no payments shall be
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<PAGE>
due under this Section 3.4 and Cetus shall be entitled to a credit in
accordance with Section 3.6(a).
3.5 COMBINATION PRODUCTS. Notwithstanding Sections 3.2 and 3.4, if any
Product on which payment is due hereunder is part of a Combination Product,
the amounts due hereunder to the Limited Partner in respect of the
Combination Product shall be prorated on the basis of the relative values of
the various component products of the Combination Product, in each case
taking into consideration, without limitation, relative cost of goods,
relative sales prices if the components were sold separately, incremental
therapeutic value of each component, relative prices of products competitive
with the various components and relative profit margins of the various
components if sold separately. If a Majority in Interest of the Limited
Partners disagree with any proration by Cetus, the matter shall be submitted
to arbitration in accordance with Section 9 hereof.
3.6 CREDITS AGAINST PAYMENTS DUE.
(a) Beginning on the date on which no further payments are due
under Section 3.4, Cetus shall be entitled to a credit against all payments
thereafter due under this Agreement, until the full amount paid under Section
3.4 and the Limited Partner's Fraction of any amounts paid under Section 6 of
the Marketing Agreement (to the extent such amounts have not been paid to
Cetus under Section 5.2(a) of the Marketing Agreement) has been so credited;
provided, however, that the total credit taken under this Section 3.6(a) in
any calendar quarter shall not exceed ten percent
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<PAGE>
of the payments otherwise due under this Agreement (before taking account of
any credits taken or allowed under this Agreement) for such quarter.
(b) To the extent that Cetus funds any cost overruns under Section
5.2 of the Development Contract for which it has not been paid in accordance
with Section 5.2(b) of the Marketing Agreement, Cetus shall be entitled to a
credit against amounts otherwise due under this Agreement in an amount equal
to the Limited Partner's Fraction multiplied by 40 percent of such
Cetus-funded cost overruns, until the Limited Partner's Fraction of 40
percent of such Cetus-funded cost overruns has been credited in full.
(c) Notwithstanding the foregoing, the total credit taken by Cetus
in respect of any calendar quarter under Sections 3.6(a) and (b) and Section
3.1 shall not exceed 25 percent of the amounts otherwise payable to the
Limited Partner for such calendar quarter (before taking account of any
credits taken under this Agreement). Any excess shall be carried over from
quarter to quarter until such excess has been credited in full in accordance
with this Section 3.6(c).
3.7 INTEREST. The parties agree that a portion of each payment received
under Sections 3.2(a) and (b) and Section 3.4 shall be interest at the
minimum applicable statutory rate necessary to avoid imputed interest or
original issue discount for federal income tax purposes.
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3.8 REDUCTION IN PAYMENT RATES. Notwithstanding any other provision of
this Section 3, if and when the aggregate of all payments to the Limited
Partner (and his assignees) made under this Agreement and as distributions
from the Partnership equal $10,000 for each Interest sold to Cetus hereunder,
the payment rates under Section 3.2(a)(i), Section 3.2(a)(ii)(y), Section
3.2(b)(i) and Section 3.2(b)(ii)(y) shall be reduced by 25 percent; and if
and when the aggregate of all payments to the Limited Partner (and his
assignees) made under this Agreement and as distributions from the
Partnership equal $20,000 for each Interest sold to Cetus hereunder, the
then-applicable payment rates under the sections described above shall be
reduced to 50 percent of the original payment rates under those sections.
This Section 3.8 will not apply if less than $68,497,500 in Interests was
sold by the Partnership.
4. TERM OF PAYMENTS.
The obligation to make payments under this Agreement in respect of any
Product in any country shall continue with respect to Net Sales made and
Other Income received through December 31, 2005.
5. ACCOUNTING.
Within 90 days after the close of each calendar quarter during the term
of this Agreement, Cetus shall render an accounting to the Limited Partner
with respect to all payments due and all credits taken for such quarter. Such
report shall indicate for such calendar quarter the amount of Net Sales and
Other Income in
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<PAGE>
respect of each Product on which payments are due hereunder; provided,
however, that if Cetus shall not have received from any licensee or
sublicensee a report of such sales, then such sales may be included in the
next quarterly report. In addition, Cetus will provide the Limited Partner
with a brief summary of the manner in which payments have been prorated under
Section 3.5. In case no payment is due for any calendar quarter, Cetus shall
so report. Cetus shall keep accurate records in sufficient detail to enable
the payments due hereunder to be determined.
6. TIME AND CURRENCY OF PAYMENT.
6.1 PAYMENTS. Payments shown by each calendar quarter report to have
accrued shall be due and payable on the date such report is due and shall be
paid in United States dollars. Any and all taxes due or payable on such
payments or with respect to the remittance thereof, and required by law to be
withheld and paid by Cetus, shall be deducted from such payments and shall be
paid by Cetus to the proper taxing authorities; provided, however, that any
withholding taxes required to be withheld and paid in any European country
shall be the sole responsibility of, and shall be paid by, Cetus and shall
not be deducted from amounts otherwise due. The rate of exchange to be used
in computing the amount of the United States dollars due in satisfaction of
payment obligations with respect to foreign countries shall be the rate
normally used by Cetus under generally accepted accounting principles.
Settlement of payment obligations shall be made by check.
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<PAGE>
6.2 LATE PAYMENTS. Any payments due hereunder that are not made
when due shall bear interest at the lesser of ten percent per annum or the
maximum rate as may be allowed by law.
7. PATENT INFRINGEMENT.
7.1 INFRINGEMENT BY THIRD PARTIES. If a third party infringes any
European patent covering any Product, Cetus shall have the sole right, at its
own expense, to bring legal action to restrain such infringement and for
damages. The parties hereto shall share in any recovery from any such action
in respect of infringement of European patents as follows: (i) first, 100
percent to Cetus to the extent of its costs and expenses (including any
expenses incurred in connection with such action during the term of the
Marketing Agreement and not paid by the Partnership thereunder), including
attorneys' fees, of such portions of the action as relate to European patents
and (ii) thereafter, to the Limited Partner in an amount equal to the Limited
Partner's Fraction of the remainder of such recovery multiplied by the
payment rate then in effect with respect to Cetus' Net Sales of Products. The
remainder shall belong to Cetus.
7.2 INFRINGEMENT BY CETUS. During the term of this Agreement, Cetus
will defend any suit, action or proceeding against Cetus alleging that the
manufacture, use or sale of any Product in Europe infringes any European
patent of a third party. Cetus shall pay all (i) the expenses (including
attorneys' fees and costs) incurred by Cetus in connection with any such
suit, action or proceeding, (ii) all damages and costs awarded against Cetus
as the
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result of any such suit, action or proceeding and (iii) the amount of any
settlement of any such suit, action or proceeding. To the extent that Cetus
incurs any costs or expenses or makes any such payments under this Section
7.2, the Limited Partner's Fraction of one-half of such costs and expenses
shall be credited against payments otherwise due to the Limited Partner under
this Agreement. In addition, to the extent that Cetus incurs any costs and
expenses under Section 11.2 of the Marketing Agreement which may be but, have
not been, repaid to Cetus thereunder as of the date of this Agreement, the
Limited Partner's Fraction of such remaining uncredited costs and expenses
shall be credited hereunder. The foregoing credits together may not exceed,
in the aggregate, 15 percent of amounts otherwise due under this Agreement
for any quarter (before taking account of any credits taken or allowed under
this Agreement), and any excess shall be carried over from quarter to quarter
until fully credited. Any credits taken under this Section 7.2 shall not be
subject to or included in the provisions of Section 3.6(c).
8. EFFECTIVE DATE AND TERM.
This Agreement will become effective on the day and year first
above written in accordance with Section 3 of the Option Agreement and shall
remain in full force and effect until December 31, 2005.
9. ARBITRATION.
9.1 DISPUTES. If any dispute arises out of this Agreement, the parties
will endeavor to settle such dispute amicably. The
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<PAGE>
Limited Partner acknowledges that this Agreement is substantially similar to
the agreements between Cetus and the other limited partners of the
Partnership. The Limited Partner agrees that if any dispute arises under this
Agreement, the Limited Partner will confer with the other Limited Partners
and will agree to settle such dispute in such manner as may be agreed to by a
Majority in Interest of the Limited Partners. The Limited Partner agrees to
be bound by any such settlement.
9.2 ARBITRATION. If the parties shall fail to settle any dispute in
accordance with Section 9.1, such dispute shall be finally settled by
arbitration conducted in San Francisco, California in accordance with the
then existing rules of the American Arbitration Association, subject to
Section 9.3, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the case of any such
arbitration, a representative (the "Representative") shall be appointed by a
Majority in Interest of the Limited Partners. The parties hereby agree that
service of any notices in the course of such arbitration at their respective
addresses as provided for in Section 10 shall be valid and sufficient.
9.3 ARBITRATORS. In any arbitration pursuant to Section 9.1, the award
shall be rendered by a majority of the members of a board of arbitration
consisting of three members, all of whom will be appointed by Cetus and the
Representative jointly or, if Cetus and the Representative cannot agree as to
three arbitrators within 30 days after commencement of the arbitration
proceeding, one
-15-
<PAGE>
arbitrator shall be appointed by each of them within 45 days after the
commencement of the arbitration proceeding, and the third shall be appointed
by mutual agreement of the two appointed arbitrators. In the event of failure
of said two arbitrators to agree upon the third arbitrator within 75 days
after commencement of the arbitration proceeding, the third arbitrator shall
be appointed by the American Arbitration Association in accordance with its
then existing rules. Notwithstanding the foregoing, if Cetus or the
Representative shall fail to appoint an arbitrator within the specified time
period, such arbitrator as well as the third arbitrator shall be appointed by
the American Arbitration Association in accordance with its then existing
rules. For the purposes of this Section 9.3 the "commencement of the
arbitration proceeding" shall be deemed to be the date upon which a written
demand for arbitration is received by one party from the other. The decision
of the Representative shall be final and binding on each Limited Partner.
-16-
<PAGE>
10. NOTICES.
Any notice, payment or other communication required or permitted to be
given hereunder shall be given in writing and shall be delivered by hand or
by registered or certified mail, postage prepaid and return receipt
requested, addressed to the Limited Partner at the address set forth on
Schedule A hereto and to Cetus at the address set forth below, or such other
address as may be designated by either party by notice pursuant to this
Section 10.
If to Cetus: Cetus Corporation
1400 Fifty-Third Street
Emeryville, California 94608
Attention: President
Any notice given in conformity with this Section 10 shall be deemed to be
effective when received by the addressee, if delivered by hand, and five days
after mailing, if mailed. The Limited Partner will notify Cetus in writing
of any change of address of the Limited Partner, and Cetus shall be entitled
to rely on the last address so given in making payments hereunder.
11. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which, when so executed, shall be deemed to be an original, and all of which,
when taken together, shall constitute this Agreement.
12. GOVERNING LAW; CHOICE OF FORUM.
This Agreement shall be governed by and construed in accordance with the
laws of the state of California as applied between residents of that state
entering into contracts wholly to be performed in that state. The parties
agree that any dispute
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<PAGE>
arising in connection with this Agreement shall be resolved in the state or
federal courts located in San Francisco, California.
13. VALIDITY OF PROVISIONS, SEVERABILITY.
If any provision of this Agreement is or becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, (a) such provision will be
deemed amended to conform to applicable laws of such jurisdiction so as to be
valid and enforceable unless it cannot be so amended without materially
altering the intention of the parties, in which event it will be stricken,
(b) the validity, legality and enforceability of such provision will not in
any way be affected or impaired thereby in any other jurisdiction, and (c)
the remainder of this Agreement will remain in full force and effect.
14. AMENDMENTS.
No amendment, modification or addition hereto shall be effective or
binding unless set forth in writing and executed by a duly authorized
representative of each party.
15. ASSIGNMENT.
Cetus may not assign its rights hereunder without the prior written
consent of a Majority in Interest of the Limited Partners, which consent
shall not be unreasonably withheld, except to a person or entity (i) with
which Cetus is merged or consolidated or which purchases all or substantially
all of its assets or (ii) which purchases or licenses all or substantially
all of Cetus' rights to the Products in Europe, and, in either case, which
assumes in writing all of Cetus' obligations hereunder. Any
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<PAGE>
consent of a Majority in Interest of the Limited Partners shall be binding on
the Limited Partner, whether or not the Limited Partner in fact consented.
16. BINDING ON SUCCESSORS.
This Agreement shall be binding on, and shall inure to the benefit of,
all successors and assigns of the parties, including, without limitation, in
the case of Cetus, any person or entity which acquires substantially all of
the assets of Cetus.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
CETUS CORPORATION
By:
--------------------------------
Vice President
--------------------------------
(Limited Partner)
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
LIMITED PARTNER NUMBER (AND PURCHASE
NAME AND ADDRESS PRICE) OF INTERESTS
<S> <C>
</TABLE>
-20-
<PAGE>
SCHEDULE B
Development costs mean all direct and indirect costs incurred by
Contractor in performing under this Agreement as determined in accordance
with generally accepted accounting principles and accounting policies of
Contractor applied on a consistent basis.
Such costs will include without limitation:
(i) Salaries and wages
(ii) Employee benefits
-- Medical insurance
-- Payroll taxes
-- Incentives
(iii) Personnel expenses
-- Travel
-- Professional development
-- Recruitment and relocation
(iv) Consultants, collaboration, honorarium and donation expenses
(v) Outside purchased services
(vi) Supplies
-- Laboratory supplies
-- Chemicals
-- Glassware
-- Office supplies
(vii) Regulatory and clinical costs in the United States and Europe
(viii) Licensing costs
(ix) Facilities and equipment related expenses
(x) Data processing costs
(xi) Insurance
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<PAGE>
(xii) Depreciation and amortization of capital and intangible assets
(xiii) Patent and patent application costs (excluding patent litigation)
(xiv) Sales and use taxes
(xv) Periodic lease payments
In determining costs allocable to this Agreement, the Contractor will employ
the following accounting policies:
(i) Direct research and development program charges are any costs
charged directly to the Product Development Programs. Labor and benefits are
charged based on the actual time spent by an employee working on the program.
Other direct expenses are charged to programs as incurred.
(ii) Direct and indirect manufacturing costs of producing material
and clinical samples utilized in the Product Development Programs are charged
based on utilization of the production facilities.
(iii) Indirect program charges are costs allocated to the Product
Development Programs through an overhead rate applied to direct labor dollars
consistent with Contractor's operations. Such indirect charges are costs not
directly charged to a research and development program or directly to
manufacturing costs.
-22-
<PAGE>
SCHEDULE C
EUROPE
Andorra
Austria
Belgium
Denmark
Finland
France
Gibraltar
Greece
Iceland
Ireland
Italy
Liechtenstein
Luxembourg
Malta
Monaco
Netherlands
Norway
Portugal
San Marino
Spain
Sweden
Switzerland
United Kingdom
West Germany
-23-
<PAGE>
SCHEDULE D
Planned Products
Interleukin-2 (IL-2)
Tumor Necrosis Factor (TNF)
Breast Cancer Immunotoxin (IMT-B)
Ovarian Cancer Immunotoxin (IMT-O)
Colony Stimulating Factor-1 (CSF-1)
Human Monoclonal Antibodies (HME) *____
Against Endotoxins
"IL-2" shall mean any protein, whether or not glycosylated, with
the amino acid sequence set forth in Figure 15b of U.S. Patent #4,518,584
entitled "Human Recombinant Interleukin-2 Muteins" and granted May 21, 1985, to
D. Mark, ET AL., and any fragment or amino terminal or carboxy terminal
variant of such protein, and any protein Homologous to any such protein, variant
or fragment, and any polypeptide construct derived from and including a portion
of the amino acid sequence above that is developed in the course of work on such
sequence, provided that such protein, variant, fragment, Homologous protein or
construct has T-cell growth and immunostimulatory activity. Chemical
modifications of any such protein, fragment, variant, Homologous protein or
construct are specifically included in the definition, provided they have T-cell
growth and immunostimulatory activity. For the purpose of this definition, a
substance that has "T-cell growth and immunostimulatory activity" shall mean a
substance that (a) stimulates proliferation of antigen or mitogen stimulated
T-cells, (b) activates mononuclear cells to kill natural killer cell-resistant
human tumor cell lines, and (c) augments natural killer cell activity.
"CSF-l" shall mean any protein, whether or not glycosylated, with the
deduced amino acid sequence set forth in Figure 5 on page 295 of the article
"Molecular Cloning of a Complementary DNA Encoding Human Macrophage-Specific
Colony-Stimulating Factor (CSF-1)," by Kawasaki, ET AL., SCIENCE, Vol. 230
(October 18, 1985), and any fragment or amino terminal or carboxy terminal
variant of such protein, and any protein Homologous to any such protein,
variant or fragment, and any polypeptide construct derived from and including
a portion of the amino acid sequence above that is developed in the course of
work on such sequence, provided that such protein, variant, fragment,
Homologous protein or construct has proliferative and differentiation
activity. Chemical modifications of any such protein, fragment, variant,
Homologous protein or construct are specifically included in the definition,
provided they have proliferative and differentiation activity. For the
purpose of this definition, a substance that has "proliferative and
differentiation activity" shall mean a substance that (a)
- -------------------------
* This product will be included only if 15,000 or more Units are sold
pursuant to the Prospectus.
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<PAGE>
stimulates the growth and differentiation of mononuclear phagocytes from
undifferentiated bone marrow progenitor cells, and (b) increases production of
alpha or beta interferon, tumor necrosis factor or myeloid colony stimulating
activity from incubated human blood monocytes.
"TNF" shall mean any protein, whether or not glycosylated, with the
amino acid sequence set forth in Figure 4 on page 152 of the article
"Molecular Cloning of the Complementary DNA for Human Tumor Necrosis Factor,"
by Wang, ET AL., SCIENCE, Vol. 228 (April 12, 1985), and any fragment or
amino terminal or carboxy terminal variant of such protein, and any protein
Homologous to any such protein, variant or fragment, and any polypeptide
construct derived from and including a portion of the amino acid sequence
above that is developed in the course of work on such sequence, provided that
such protein, variant, fragment, Homologous protein or construct has
cytostatic or cytotoxic activity. Chemical modifications of any such protein,
fragment, variant, Homologous protein and construct are specifically
included in the definition, provided they have cytostatic or cytotoxic
activity. For the purpose of this definition, a substance that has
"cytostatic or cytotoxic activity" shall mean a substance that (a) has IN
VITRO cytostatic or cytotoxic activity against at least four discrete human
malignant tumor cell lines, (b) causes IN VIVO necrosis of subcutaneous
methylcholanthrene-induced murine fibrosarcoma upon systemic or intratumoral
administration, and (c) has significantly less IN VITRO cytostatic and/or
cytotoxic activity against normal cell lines than against malignant tumor
cell lines.
"IMT-B" shall mean any molecule composed of a monoclonal antibody or
fragment thereof that binds preferentially to the surface of one or more human
breast cancer cell types rather than to the surfaces of most normal cells,
and that is linked to a peptide toxin or fragments thereof, provided that
such molecule is preferentially cytotoxic or cytostatic to human breast
cancer cells.
"IMT-O" shall mean any molecule composed of a monoclonal antibody or
fragment thereof that binds preferentially to the surface of one or more
ovarian cancer cell types rather than to the surfaces of most normal cells,
and that is linked to a peptide toxin or fragments thereof, provided that
such molecule is cytotoxic or cytostatic to human ovarian cancer cells.
"HME" shall mean any monoclonal antibody obtained either by hybridoma or
recombinant DNA technology or combinations thereof that binds within the core
and/or lipid A regions of, and neutralizes the toxic effects caused by, the
lipopolysaccharide in or derived from the cell walls of Gram-negative bacteria.
Note: For purposes of the foregoing definitions, "Homologous," as
applied to proteins, shall mean that condition wherein a protein or protein
fragment contains consecutive sets of
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<PAGE>
three or more consecutive amino acids, each of which sets matches a unique
portion of the amino acid sequence of another protein or protein fragment
(such as, for example, IL-2, TNF and CSF-1), and wherein the total number of
amino acids in all of such sets equals 70 percent or more of the total amino
acids in the protein or fragment, the homologous nature of which is being
determined.
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<PAGE>
SCHEDULE E
SUBSTITUTE PRODUCTS
[intentionally left blank]
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<PAGE>
SCHEDULE F
<TABLE>
<CAPTION>
Target Marketing
Planned Product Approval Date
--------------- -----------------
<S> <C>
Interleukin-2 July 31, 1989
Tumor Necrosis Factor July 31, 1990
Breast Cancer Immunotoxin January 31, 1991
Ovarian Cancer Immunotoxin January 31, 1991
Colony Stimulating Factor-1 April 30, 1991
Human Monoclonal Antibodies October 31, 1990
Against Endotoxins *
----
</TABLE>
- -------------------------
* This product will be included only if 15,000 or more Units are sold
pursuant to the Prospectus.
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<PAGE>
EXHIBIT B TO
OPTION AGREEMENT
(ALL OR PART
STOCK)
PURCHASE AGREEMENT
AGREEMENT made as of the * day of * ,199__, by and between
----- --------
Cetus Corporation ("Cetus") and the limited partner of Cetus Healthcare
Limited Partnership II, a California limited partnership (the "Partnership")
listed on Schedule A hereto (the "Limited Partner").
RECITALS
A. Pursuant to an Option Agreement, the Limited Partner has granted to
Cetus an option (the "Purchase Option") to purchase the Limited Partner's
interest in the Partnership.
B. In accordance with the Option Agreement, Cetus has exercised the
Purchase Option and the parties are to execute this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" shall mean a corporation or any other business entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, the designated party.
"Control" shall mean ownership of more than 50 percent of the shares entitled
to vote for the election of directors in the case of a corporation and more
than 50 percent of the beneficial interests in the case of a business entity
other than a corporation.
- --------------------------
* To be dated in accordance with Section 3 of the Option
Agreement.
<PAGE>
1.2 "Closing Date" shall mean the date on which the Limited Partner
actually purchased his or her interest in the Partnership pursuant to a
closing.
1.3 "Combination Product" shall mean a product for the prevention,
treatment or mitigation of disease in humans that incorporates any Product
with one or more other human therapeutic products that is not a Product.
1.4 "Common Stock" shall mean shares of Cetus common stock.
1.5 "Development Contract" shall mean the Development and Clinical
Agreement between Cetus and the Partnership dated as of December 1, 1986.
1.6 "Development Costs" shall mean Cetus' direct and indirect costs, as
described on Schedule B, incurred in the development of Products under the
Development Contract and, in the case of Substituted Products, after
termination of the Development Contract.
1.7 "Excess Cash" shall mean all cash remaining in the Partnership on
the date the Purchase Option is exercised, less reserves for repayment of any
Partnership indebtedness and expenses incurred before the date the Purchase
Option is exercised.
1.8 "Europe" shall mean the countries listed on Schedule C hereto.
1.9 "Interest" shall mean an interest in the Partnership originally
purchased for $4,566.50 (or $3,654 in the case of an Individual Retirement
Account).
-2-
<PAGE>
1.10 "Limited Partner's Fraction" shall mean a fraction, the numerator
of which is the original purchase price paid to the Partnership for the
Interests owned by the Limited Partner immediately before the exercise of the
Purchase Option, and the denominator of which is the total original purchase
price paid to the Partnership for the Interests owned by all Limited Partners
immediately before the exercise of any purchase option granted by any Limited
Partner.
1.11 "Limited Partners" shall mean all of the limited partners of the
Partnership.
1.12 "Majority in Interest" means Limited Partners holding Interests for
which the original purchase price paid to the Partnership exceeded 50 percent
of the total original purchase price paid to the Partnership for the
Interests held by all Limited Partners on the date the Purchase Option is
exercised, excluding the General Partner of the Partnership and Cetus to the
extent either or both of them holds Interests on that date.
1.13 "Major Market Country" shall mean any one of France, Italy, the
United Kingdom and West Germany.
1.14 "Marketing Agreement" shall mean the Manufacturing and Marketing
Agreement between Cetus and the Partnership dated as of December 1, 1986.
1.15 "Net Sales" shall mean the commercial sales in Europe after the
date of this Agreement to independent, unrelated parties in bona fide
arm's-length transactions, less the following deductions: (i) trade and/or
quantity discounts actually allowed
-3-
<PAGE>
and taken in such amounts as are customary in the trade; (ii) commissions
paid or allowed to independent brokers and agents; (iii) sales and other
excise taxes and duties paid, absorbed or allowed; (iv) license, sublicense
or distribution fees payable to third parties (other than to Cetus or Cetus
Healthcare Limited Partnership or its partners or any payments to the Limited
Partners); (v) amounts billed to cover transportation costs; (vi) three
percent of the total amounts invoiced to cover transportation charges, if any
such charges are not separately billed; and (vii) amounts repaid or credited
by reason of rejections, defects or returns or because of retroactive price
reductions, and allowances for bad debts. Any deduction which could fall
within more than one of the clauses of this Section 1.15 shall only be
counted in one such clause.
1.16 "Other Income" shall mean (i) periodic payments received by Cetus
or any of its Affiliates under any license or sublicense for the sale of any
Product in Europe, (ii) front-end fees, distribution fees, prepaid royalties
and similar one-time, infrequent or special payments received by Cetus or any
of its Affiliates for the sale of a Product in Europe and (iii) Cetus' and
its Affiliates' profits arising from any joint venture between Cetus or one
of its Affiliates and one or more third parties for the sale of Products in
Europe by such third party or joint venture or from any agreement under which
Cetus or one of its Affiliates manufactures Products for sale in Europe by a
third party at a price in excess of Cetus' or such Affiliates' actual fully
burdened
-4-
<PAGE>
manufacturing costs of such Products determined in a manner consistent with
generally accepted accounting principles and Cetus' then-current accounting
policies. Other Income shall not include any amounts, if any, payable to any
third party who is not an Affiliate of Cetus, with respect to any
sublicensing or joint venture arrangement involving the Products. Any payment
to Cetus or any of its Affiliates which falls within the definition of Other
Income shall only be counted as Other Income one time, even if it could, by
definition, fall within more than one clause of this Section 1.16. Any
payment included in Net Sales shall not be included in Other Income.
1.17 "Partnership Funds" shall mean the amounts paid by the Partnership
to Cetus under the Development Contract.
1.18 "Planned Product" shall mean one of the products listed and
described on Schedule D hereto.
1.19 "Product" shall mean a Planned Product or a Substitute Product.
1.20 "Prospectus" shall mean the prospectus of the Partnership pursuant
to which Interests were sold to the public.
1.21 "Substitute Product" shall mean a product substituted for a Planned
Product in accordance with Section 3.4(b) of the Development Contract and
listed and described by the General Partner as a Substitute Product on
Schedule E.
-5-
<PAGE>
2. PURCHASE AND SALE OF PARTNERSHIP INTEREST.
Cetus hereby purchases, and the Limited Partner hereby sells to Cetus,
all of the Limited Partner's Interests in the Partnership.
3. PURCHASE PRICE; PAYMENT.
The purchase price for the Limited Partner's Interests shall consist of
a lump sum payment and installment payments as follows:
3.1 LUMP SUM PAYMENT. A lump sum payment, which consists of all Common
Stock or half Common Stock and half cash pursuant to the election made by the
Limited Partner or his predecessor in the manner described in the Prospectus,
shall be paid as follows:
(a) If the Limited Partner (or his predecessor) elected
to receive a lump sum payment consisting entirely of Cetus
Common Stock (except for fractional shares as provided in
subparagraph (c)(iv)), a total of __________(1) shares of Common
Stock, as such number of shares may be adjusted in accordance
with subsection (c) below. Such shares of Common Stock shall
be deliverable upon receipt by Cetus from the Limited Partner
of an original of this Agreement executed by the Limited
Partner; or
(b) If the Limited Partner (or his predecessor) elected to
receive a lump sum payment half in cash and half in stock,
- ------------------------
(1) This number will be inserted by Cetus and will be the number
of whole shares per Interest owned by the Limited Partner
equal to the greater of (a) 100 shares or (b) the number of
shares equal to $2,250 divided by the average of the last sale
price of the Common Stock as quoted on NASDAQ for the period
from March 2, 1987 to March 13, 1987.
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<PAGE>
a total payment consisting of $1,125 per Unit in cash and __________(2)
shares of Common Stock, as such number of shares may be adjusted in
accordance with subsection (c) below. Such shares shall be deliverable
and such payment shall be payable upon receipt by Cetus from the Limited
Partner of an original of this Agreement executed by the Limited
Partner.
(c) The number of shares of Common Stock to be delivered to the
Limited Partner pursuant to subsection (a) or (b) above shall be
adjusted as set forth below:
(i) STOCK DIVIDENDS. If the number of shares of Common
Stock outstanding at any time after the Closing Date until the date
hereof shall have been increased by a stock dividend payable in
shares of Common Stock, or by a subdivision or split-up of shares of
Common Stock, then, immediately after the record date fixed for the
determination of holders of Common Stock entitled to receive such
stock dividend or the effective date of such subdivision or split-up
(in either case, if such record date or effective date is between
the Closing Date and the date hereof), as the case may be, the
number of shares of Common Stock to be delivered pursuant to
subsection (a) or (b) above shall be appropriately increased so that
the Limited Partner thereafter shall be entitled to receive the
number of shares of Common Stock that the Limited Partner would have
owned immediately
- -------------------
(2) One half the number of shares calculated under footnote 1 above.
-7-
<PAGE>
following such action had the Purchase Option been exercised by Cetus
immediately prior to such record date.
(ii) COMBINATION OF SHARES. If the number of shares of
Common Stock outstanding at any time after the Closing Date until
the date hereof shall have been decreased by a combination of the
outstanding shares of Common Stock, then, immediately after the
effective date of such combination (if such effective date is after
the Closing Date and before the date hereof), the number of shares
of Common Stock to be delivered to the Limited Partner pursuant to
subsection (a) or (b) above shall be appropriately decreased so that
the Limited Partner shall be entitled to receive the number of
shares of Common Stock that the Limited Partner would have owned
immediately following such action had the Purchase Option been
exercised by Cetus immediately prior to such event.
(iii) REORGANIZATION, ETC. If any capital reorganization
of Cetus, or any reclassification of the Common Stock, or any
consolidation of Cetus with or merger of Cetus with or into any
other person, or any sale, lease or other transfer of all or
substantially all of the assets of Cetus to any other person, or the
PRO RATA distribution of any debt securities to the holders of
Common Stock in respect of the Common Stock, shall be effected in
such a way that the holders of Common Stock shall be entitled to
receive stock, securities or assets
-8-
<PAGE>
with respect to or in exchange for Common Stock, then the
Limited Partner shall have the right to receive, upon
exercise of the Purchase Option, the kind and amount of
stock, securities or assets receivable upon such
reorganization, reclassification, consolidation, merger
or sale by a holder of the number of shares of Common
Stock that the Limited Partner would have been entitled
to receive pursuant to subparagraph (a) or (b) above had
the Purchase Option been exercised by Cetus immediately
prior to such reorganization, reclassification,
consolidation, merger or sale, subject to adjustments
which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this subsection (iii).
(iv) FRACTIONAL SHARES. No fractional shares of
Common Stock or scrip shall be issued to the Limited
Partner as part of the stock payment provided in
subparagraph (a) or (b) above. Instead of any fractional
shares of Common Stock that would otherwise be issuable
to the Limited Partner, Cetus shall pay to the Limited
Partner a cash adjustment in respect of such fractional
interest in an amount equal to that fractional interest
of the closing price of the Common Stock as quoted on
NASDAQ as of the date of this Agreement.
(d) The value of the stock (determined as set forth in
paragraph (e) below) and the amount of cash, if any, paid to
the Limited Partner as the lump sum payment under Section
-9-
<PAGE>
3.1(a) or 3.1(b) (in each case including any payment under subparagraph
(c)(iv) above) shall be credited against all payments due, or that may
become due, under the remainder of this Agreement until the full amount
of the lump sum payment has been credited; provided, however, that the
total credit taken under this Section 3.1 for any calendar quarter shall
not exceed (i) for the cash portion of such lump sum payment, nine
percent of the payments otherwise due under this Agreement for such
quarter (before taking account of any credits allowed or taken under
this Agreement) and (ii) for the stock portion of such lump sum payment,
eighteen percent of the payments otherwise due under this Agreement for
such quarter (before taking account of any credits allowed or taken
under this Agreement) multiplied by a fraction, the numerator of which
is the product of (x) the average of the last sale price of the Common
Stock as quoted on NASDAQ for the fifteen trading days immediately
preceding the date hereof and (y) the number of shares of stock received
hereunder, and the denominator of which is $2,250 multiplied by the
number of Units being purchased from the Limited Partner.
(e) For purposes of subsection 3.1(d), the value of the stock paid
under subsection 3.1(a) or 3.1(b) shall be determined by multiplying the
number of whole shares delivered to the Limited Partner (as determined
in accordance with Footnote 1 above) by the average of the last sale
price of the
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<PAGE>
Common Stock as quoted on NASDAQ on the 15 trading days preceding the
date on which the Purchase Option is exercised.
3.2 ADDITIONAL PAYMENTS. The Limited Partner's Fraction of the following
payments:
(a) PLANNED PRODUCTS.
(i) ______ (3) percent of the Net Sales of the Products by
Cetus and its Affiliates from and after the date of this Agreement; and
(ii) on a Planned Product-by-Planned Product basis,
and to the extent not included in clause (i) above, the lesser
of (x) fifty percent of any Other Income received by Cetus and
its Affiliates in respect of the Planned Product from and
after the date of this Agreement and (y)________ (3) percent
of the Net Sales of the Product by any party other than Cetus
or its Affiliates.
(b) SUBSTITUTE PRODUCTS. A payment equal to the product of the
percentage set forth below, multiplied by a fraction, the numerator of
which is the total Partnership Funds paid under the Development Contract
with respect to the Substitute Product and the Planned Product for which
the Substitute Product was substituted under the Development Contract
(and any intervening Substitute Product), and the denominator of which
is the total Partnership Funds paid under the Development Contract with
respect to the Planned Product for which the Substitute Product was
substituted (and any
- --------------------------------
(3) To be inserted by Cetus in accordance with Schedule 2 to the Option
Agreement.
-11-
<PAGE>
intervening Substitute Product) plus 40 percent of the total funds spent
on the Substitute Product and any intervening Substitute Product through
regulatory and pricing approval in a Major Market Country, in each case
through the period for which the payments are being calculated.
(i) _______ (4) percent of the Net Sales by Cetus
and its Affiliates of the Substitute Products from and after
the date of this Agreement; and
(ii) on a Substitute Product-by-Substitute Product
basis, and to the extent not included in clause (i) above, the
lesser of (x) fifty percent of any Other Income received by
Cetus and its Affiliates in respect of the Substitute Products
from and after the date of this Agreement and (y) _______ (4)
percent of the Net Sales of the Product by any party other
than Cetus or its Affiliates.
(c) OTHER PAYMENTS. Cetus shall also pay to the Limited Partner, at
the same time as otherwise would have been payable under the Marketing
Agreement, in respect of activities up to the date on which the Purchase
Option was exercised, an amount equal to the Limited Partner's Fraction
of (i) any payments not previously made that were due (and unpaid) on
the date the Purchase Option was exercised or which thereafter became
due to the Partnership under the Marketing Agreement and (ii) any Excess
Cash.
- ----------------------------
(4) To be inserted by Cetus in accordance with Schedule 2 to the Option
Agreement.
-12-
<PAGE>
3.3 DESIGNATED PAYMENTS. Notwithstanding anything else contained in
this Agreement, the Limited Partner shall not be entitled to any of the types
of payments described in Section 3.2 to the extent that such payments are
designated and used on or after the payment date for research, development,
testing or obtaining regulatory approvals of any Product.
3.4 CERTAIN UNITED STATES PAYMENTS. Notwithstanding the provisions
of Section 3.2, but subject to Section 3.3, beginning on the date set forth
on Schedule F opposite each Planned Product, payments shall be made to the
Limited Partner with respect to such Planned Product in an amount equal to
the Limited Partner's Fraction of two percent of net sales (defined as in
Section 1.15 without reference to Europe) of the Planned Product by Cetus and
its Affiliates in the United States. Notwithstanding any other provision of
this Agreement, the payments described in this Section 3.4 shall be made
until such time as the Limited Partner has received, in the aggregate,
payments from the Partnership and Cetus totalling $5,000 per Interest.
Thereafter, no payments shall be due under this Section 3.4 and Cetus shall
be entitled to a credit in accordance with Section 3.6(a).
3.5 COMBINATION PRODUCTS. Notwithstanding Sections 3.2 and 3.4, if
any Product on which payment is due hereunder is part of a Combination
Product, the amount due hereunder to the Limited Partner in respect of the
Combination Product shall be prorated on the basis of the relative values of
the various component products of the Combination Product, in each case
taking into consideration,
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<PAGE>
without limitation, relative cost of goods, relative sales prices if the
components were sold separately, incremental therapeutic value of each
component, relative prices of products competitive with the various
components and relative profit margins of the various components if sold
separately. If a Majority in Interest of the Limited Partners disagree with
any proration by Cetus, the matter shall be submitted to arbitration in
accordance with Section 9 hereof.
3.6 CREDITS AGAINST PAYMENTS DUE.
(a) Beginning on the date on which no further payments are due
under Section 3.4, Cetus shall be entitled to a credit against all payments
thereafter due under this Agreement, until the full amount paid under Section
3.4 and the Limited Partner's Fraction of any amounts paid under Section 6 of
the Marketing Agreement (to the extent such amounts have not been paid to Cetus
under Section 5.2(a) of the Marketing Agreement) has been so credited; provided,
however, that the total credit taken under this Section 3.6(a) in any calendar
quarter shall not exceed ten percent of the payments otherwise due under this
Agreement for such quarter (before taking account of any credits taken or
allowed under this Agreement).
(b) To the extent that Cetus funds any cost overruns under
Section 5.2 of the Development Contract for which it has not been paid in
accordance with Section 5.2(b) of the Marketing Agreement, Cetus shall be
entitled to a credit against amounts otherwise due under this Agreement in an
amount equal to the
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<PAGE>
Limited Partner's Fraction multiplied by 40 percent of such Cetus-funded cost
overruns, until the Limited Partner's Fraction of 40 percent of such
Cetus-funded cost overruns has been credited in full.
(c) Notwithstanding the foregoing, the total credit taken by Cetus
in respect of any calendar quarter under Sections 3.6(a) and (b) and Sections
3.1 shall not exceed 25 percent of the amounts otherwise payable to the
Limited Partner for such calendar quarter (before taking account of any
credits taken or allowed under this Agreement). Any excess shall be carried
over from quarter to quarter until such excess has been credited in full in
accordance with this Section 3.6(c).
3.7 INTEREST. The parties agree that a portion of each payment received
under Sections 3.2(a) and (b) and Section 3.4 shall be interest at the
minimum applicable statutory rate necessary to avoid imputed interest or
original issue discount for federal income tax purposes.
3.8 REDUCTION IN PAYMENT RATES. Notwithstanding any other provision of
this Section 3, if and when the aggregate of all payments to the Limited
Partner (and his assignees) made under this Agreement and as distributions
from the Partnership equal $10,000 for each Interest sold to Cetus hereunder,
the payment rates under Section 3.2(a)(i), Section 3.2(a)(ii)(y), Section
3.2(b)(i) and Section 3.2(b)(ii)(y) shall be reduced by 25 percent; and if
and when the aggregate of all payments to the Limited Partner (and his
assignees) made under this Agreement and as distributions from the
-15-
<PAGE>
Partnership equal $20,000 for each Interest sold to Cetus hereunder, the
then-applicable payment rates under the sections described above shall be
reduced to 50 percent of the original payment rates under those sections. For
purposes of this Section 3.8 only, if the Limited Partner received all Common
Stock as a lump sum payment under Section 3.1, that Common Stock shall be
treated as $2,250 in cash per Unit in order to determine the aggregate
payments from the Partnership and Cetus; if the Limited Partner received half
Common Stock, that stock will be treated as $1,125 in cash per Unit for such
purpose. This Section 3.8 will not apply if less than $68,497,500 in
Interests was sold by the Partnership.
4. TERM OF PAYMENTS.
The obligation to make payments under this Agreement in respect of any
Product in any country shall continue with respect to Net Sales made and
Other Income received through December 31, 2005.
5. ACCOUNTING.
Within 90 days after the close of each calendar quarter during the term
of this Agreement, Cetus shall render an accounting to the Limited Partner
with respect to all payments due and all credits taken for such quarter. Such
report shall indicate for such calendar quarter the amount of Net Sales and
Other Income in respect of each Product on which payments are due hereunder;
provided, however, that if Cetus shall not have received from any licensee or
sublicensee a report of such sales, then such sales may
-16-
<PAGE>
be included in the next quarterly report. In addition, Cetus will provide
the Limited Partner with a brief summary of the manner in which payments have
been prorated under Section 3.5. In case no payment is due for any calendar
quarter, Cetus shall so report. Cetus shall keep accurate records in sufficient
detail to enable the payments due hereunder to be determined.
6. TIME AND CURRENCY OF PAYMENT.
6.1 PAYMENTS. Payments shown by each calendar quarter report to have
accrued shall be due and payable on the date such report is due and shall be
paid in United States dollars. Any and all taxes due or payable on such
payments or with respect to the remittance thereof, and required by law to be
withheld and paid by Cetus, shall be deducted from such payments and shall be
paid by Cetus to the proper taxing authorities; provided, however, that any
withholding taxes required to be withheld and paid in any European country
shall be the sole responsibility of, and shall be paid by, Cetus and shall
not be deducted from amounts otherwise due. The rate of exchange to be used
in computing the amount of the United States dollars due in satisfaction of
payment obligations with respect to foreign countries shall be the rate
normally used by Cetus under generally accepted accounting principles.
Settlement of payment obligations shall be made by check.
6.2 LATE PAYMENTS. Any payments due hereunder that are not made when due
shall bear interest at the lesser of ten percent per annum or the maximum
rate as may be allowed by law.
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<PAGE>
7. PATENT INFRINGEMENT.
7.1 INFRINGEMENT BY THIRD PARTIES. If a third party infringes any
European patent covering any Product, Cetus shall have the sole right, at its
own expense, to bring legal action to restrain such infringement and for
damages. The parties hereto shall share in any recovery in respect of
infringement of European patents from any such action as follows: (i) first,
100 percent to Cetus to the extent of its costs and expenses (including any
expenses incurred in connection with such action during the term of the
Marketing Agreement and not paid by the Partnership thereunder), including
attorneys' fees, of such portions of the action as relate to European patents
and (ii) thereafter, to the Limited Partner in an amount equal to the Limited
Partner's Fraction of the remainder of such recovery multiplied by the
payment rate then in effect with respect to Cetus' Net Sales of Products. The
remainder shall belong to Cetus.
7.2 INFRINGEMENT BY CETUS. During the term of this Agreement, Cetus will
defend any suit, action or proceeding against Cetus alleging that the
manufacture, use or sale of any Product in Europe infringes any European
patent of a third party. Cetus shall pay all (i) the expenses (including
attorneys' fees and costs) incurred by Cetus in connection with any such
suit, action or proceeding, (ii) all damages and costs awarded against Cetus
as the result of any such suit, action or proceeding and (iii) the amount of
any settlement of any such suit, action or proceeding. To the extent that
Cetus incurs any costs or expenses or makes any such
-18-
<PAGE>
payments under this Section 7.2, the Limited Partner's Fraction of one-half
of such costs and expenses shall be credited against payments otherwise due
to the Limited Partner under this Agreement. In addition, to the extent that
Cetus incurs any costs and expenses under Section 11.2 of the Marketing
Agreement which may be, but have not been, repaid to Cetus thereunder as of
the date of this Agreement, the Limited Partner's Fraction of such remaining
uncredited costs and expenses shall be credited hereunder. The foregoing
credits together may not exceed, in the aggregate, 15 percent of amounts
otherwise due under this Agreement for any quarter (before taking account of
any credits taken or allowed under this Agreement), and any excess shall be
carried over from quarter to quarter until fully credited. Any credits taken
under this Section 7.2 shall not be subject to or included in the provisions
of Section 3.6(c).
8. EFFECTIVE DATE AND TERM.
This Agreement will become effective on the day and year first above
written in accordance with Section 3 of the Option Agreement and shall remain
in full force and effect until December 31, 2005.
9. ARBITRATION.
9.1 DISPUTES. If any dispute arises out of this Agreement, the parties
will endeavor to settle such dispute amicably. The Limited Partner
acknowledges that this Agreement is substantially similar to the agreements
between Cetus and the other limited partners of the Partnership. The Limited
Partner agrees that if
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<PAGE>
any dispute arises under this Agreement, the Limited Partner will confer
with the other Limited Partners and will agree to settle such dispute in such
manner as may be agreed to by a Majority in Interest of the Limited Partners.
The Limited Partner agrees to be bound by any such settlement.
9.2 ARBITRATION. If the parties shall fail to settle any dispute in
accordance with Section 9.1, such dispute shall be finally settled by
arbitration conducted in San Francisco, California in accordance with the
then existing rules of the American Arbitration Association, subject to
Section 9.3, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the case of any such
arbitration, a representative (the "Representative") shall be appointed by a
Majority in Interest of the Limited Partners. The parties hereby agree that
service of any notices in the course of such arbitration at their respective
addresses as provided for in Section 10 shall be valid and sufficient.
9.3 ARBITRATORS. In any arbitration pursuant to Section 9.1, the award
shall be rendered by a majority of the members of a board of arbitration
consisting of three members, all of whom will be appointed by Cetus and the
Representative jointly or, if Cetus and the Representative cannot agree as to
three arbitrators within 30 days after commencement of the arbitration
proceeding, one arbitrator shall be appointed by each of them within 45 days
after the commencement of the arbitration proceeding, and the third shall be
appointed by mutual agreement of the two appointed arbitrators. In
-20-
<PAGE>
the event of failure of said two arbitrators to agree upon the third
arbitrator within 75 days after commencement of the arbitration proceeding,
the third arbitrator shall be appointed by the American Arbitration
Association in accordance with its then existing rules. Notwithstanding the
foregoing, if Cetus or the Representative shall fail to appoint an arbitrator
within the specified time period, such arbitrator as well as the third
arbitrator shall be appointed by the American Arbitration Association in
accordance with its then existing rules. For the purposes of this Section 9.3
the "commencement of the arbitration proceeding" shall be deemed to be the
date upon which a written demand for arbitration is received by one party
from the other. The decision of the Representative shall be final and binding
on each Limited Partner.
10. NOTICES.
Any notice, payment or other communication required or permitted to be
given hereunder shall be given in writing and shall be delivered by hand or
by registered or certified mail, postage prepaid and return receipt
requested, addressed to the Limited Partner at the address set forth on
Schedule A hereto and to Cetus at the address set forth below, or such other
address as may be designated by either party by notice pursuant to this
Section 10.
If to Cetus: Cetus Corporation
1400 Fifty-Third Street
Emeryville, California 94608
Attention: President
Any notice given in conformity with this Section 10 shall be deemed to be
effective when received by the addressee, if delivered by
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<PAGE>
hand, and five days after mailing, if mailed. The Limited Partner will
notify Cetus in writing of any change of address of the Limited Partner, and
Cetus shall be entitled to rely on the last address so given in making payments
hereunder.
11. NASADAQ.
Whenever the price of Common Stock is to be determined under this
Agreement by reference to prices quoted on NASDAQ, if the Common Stock is at
the relevant time not quoted on NASDAQ, then, if the Common Stock is listed
on a national stock exchange, the price shall be determined with reference to
the closing price of the Common Stock on such exchange on the relevant days.
If the Common Stock is not quoted on NASDAQ or listed on a national stock
exchange, the lump sum payment to be made under Section 3.1 hereof will be
$2,250 in cash per Interest, and all references to Cetus Common Stock will be
deemed deleted.
12. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which, when so executed, shall be deemed to be an original, and all of
which, when taken together, shall constitute this Agreement.
13. GOVERNING LAW; CHOICE OF FORUM.
This Agreement shall be governed by and construed in accordance with the
laws of the state of California as applied between residents of that state
entering into contracts wholly to be performed in that state. The parties
agree that any dispute
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<PAGE>
arising in connection with this Agreement shall be resolved in the state or
federal courts located in San Francisco, California.
14. VALIDITY OF PROVISIONS, SEVERABILITY.
If any provision of this Agreement is or becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, (a) such provision will be
deemed amended to conform to applicable laws of such jurisdiction so as to be
valid and enforceable unless it cannot be so amended without materially
altering the intention of the parties, in which event it will be stricken,
(b) the validity, legality and enforceability of such provision will not in
any way be affected or impaired thereby in any other jurisdiction, and (c)
the remainder of this Agreement will remain in full force and effect.
15. AMENDMENTS.
No amendment, modification or addition hereto shall be effective or
binding unless set forth in writing and executed by a duly authorized
representative of each party.
16. ASSIGNMENT.
Cetus may not assign its rights hereunder without the prior written
consent of a Majority in Interest of the Limited Partners, which consent
shall not be unreasonably withheld, except to a person or entity (i) with
which Cetus is merged or consolidated or which purchases all or substantially
all of its assets or (ii) which purchases or licenses all or substantially
all of Cetus' rights to the Products in Europe, and, in either case, which
assumes in writing all of Cetus' obligations hereunder. Any
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<PAGE>
consent of a majority in interest of the Limited Partners shall be binding on
the Limited Partner, whether or not the Limited Partner in fact consented.
17. BINDING ON SUCCESSORS.
This Agreement shall be binding on, and shall inure to the benefit of,
all successors and assigns of the parties, including, without limitation, in
the case of Cetus, any person or entity which acquires all or substantially
all of the assets of Cetus.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
CETUS CORPORATION
By:
------------------------------
Vice President
------------------------------
(Limited Partner)
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Limited Partner Number and Purchase
Name and Address Price of Interests
---------------- -------------------
<S> <C>
</TABLE>
-25-
<PAGE>
SCHEDULE B
Development costs mean all direct and indirect costs incurred by
Contractor in performing under this Agreement as determined in accordance
with generally accepted accounting principles and accounting policies of
Contractor applied on a consistent basis.
Such costs will include without limitation:
(i) Salaries and wages
(ii) Employee benefits
-- Medical insurance
-- Payroll taxes
-- Incentives
(iii) Personnel expenses
-- Travel
-- Professional development
-- Recruitment and relocation
(iv) Consultants, collaboration, honorarium and donation expenses
(v) Outside purchased services
(vi) Supplies
-- Laboratory supplies
-- Chemicals
-- Glassware
-- Office supplies
(vii) Regulatory and clinical costs in the United States and Europe
(viii) Licensing costs
(ix) Facilities and equipment related expenses
(x) Data processing costs
(xi) Insurance
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<PAGE>
(xii) Depreciation and amortization of capital and intangible
assets
(xiii) Patent and patent application costs (excluding patent
litigation costs)
(xiv) Sales and use taxes
(xv) Periodic lease payments
In determining costs allocable to this Agreement, the Contractor will
employ the following accounting policies:
(i) Direct research and development program charges are
any costs charged directly to the Product Development Programs. Labor
and benefits are charged based on the actual time spent by an employee
working on the program. Other direct expenses are charged to programs as
incurred.
(ii) Direct and indirect manufacturing costs of
producing material and clinical samples utilized in the Product
Development Programs are charged based on utilization of the production
facilities.
(iii) Indirect program charges are costs allocated to
the Product Development Programs through an overhead rate applied to
direct labor dollars consistent with Contractor's operations. Such
indirect charges are costs not directly charged to a research and
development program or directly to manufacturing costs.
-27-
<PAGE>
SCHEDULE C
EUROPE
<TABLE>
<S><C>
Andorra
Austria
Belgium
Denmark
Finland
France
Gibraltar
Greece
Iceland
Ireland
Italy
Liechtenstein
Luxembourg
Malta
Monaco
Netherlands
Norway
Portugal
San Marino
Spain
Sweden
Switzerland
United Kingdom
West Germany
</TABLE>
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<PAGE>
SCHEDULE D
Planned Products
Interleukin-2 (IL-2)
Tumor Necrosis Factor (TNF)
Breast Cancer Immunotoxin (IMT-B)
Ovarian Cancer Immunotoxin (IMT-0)
Colony Stimulating Factor-1 (CSF-1)
Human Monoclonal Antibodies Against Endotoxins (HME)*
"IL-2" shall mean any protein, whether or not glycosylated, with the
amino acid sequence set forth in Figure 15b of U.S. Patent #4,518,584
entitled "Human Recombinant Interleukin-2 Muteins" and granted May 21, 1985,
to D. Mark, ET AL., and any fragment or amino terminal or carboxy terminal
variant of such protein, and any protein Homologous to any such protein,
variant or fragment, and any polypeptide construct derived from and including
a portion of the amino acid sequence above that is developed in the course
of work on such sequence, provided that such protein, variant, fragment,
Homologous protein or construct has T-cell growth and immunostimulatory
activity. Chemical modifications of any such protein, fragment, variant,
Homologous protein or construct are specifically included in the definition,
provided they have T-cell growth and immunostimulatory activity. For the
purpose of this definition, a substance that has "T-cell growth and
immunostimulatory activity" shall mean a substance that (a) stimulates
proliferation of antigen or mitogen stimulated T-cells, (b) activates
mononuclear cells to kill natural killer cell-resistant human tumor cell
lines, and (c) augments natural killer cell activity.
"CSF-1" shall mean any protein, whether or not glycosylated, with the
deduced amino acid sequence set forth in Figure 5 on page 295 of the article
"Molecular Cloning of a Complementary DNA Encoding Human Macrophage-Specific
Colony-Stimulating Factor (CSF-1)," by Kawasaki, ET AL., SCIENCE, Vol. 230
(October 18, 1985), and any fragment or amino terminal or carboxy terminal
variant of such protein, and any protein Homologous to any such protein,
variant or fragment, and any polypeptide construct derived from and including
a portion of the amino acid sequence above that is developed in the course of
work on such sequence, provided that such protein, variant, fragment,
Homologous protein or construct has proliferative and differentiation
activity. Chemical modifications of any such protein, fragment,
variant, Homologous protein or construct are specifically included in the
definition, provided they have proliferative and differentiation activity.
For the purpose of this definition, a substance that has "proliferative and
differentiation activity" shall mean a substance that (a) stimulates the
growth and differentiation of mononuclear phagocytes
- -----------------------
* This product will be included only if $15,000 or more Units are sold
pursuant to the Prospectus.
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<PAGE>
from undifferentiated bone marrow progenitor cells, and (b) increases
production of alpha or beta interferon, tumor necrosis factor or myeloid
colony stimulating activity from incubated human blood monocytes.
"TNF" shall mean any protein, whether or not glycosylated, with the
amino acid sequence set forth in Figure 4 on page 152 of the article
"Molecular Cloning of the Complementary DNA for Human Tumor Necrosis Factor,"
by Wang, ET AL., SCIENCE, Vol. 228 (April 12, 1985), and any fragment or
amino terminal or carboxy terminal variant of such protein, and any protein
Homologous to any such protein, variant or fragment, and any polypeptide
construct derived from and including a portion of the amino acid sequence
above that is developed in the course of work on such sequence, provided that
such protein, variant, fragment, Homologous protein or construct has
cytostatic or cytotoxic activity. Chemical modifications of any such protein,
fragment, variant, Homologous protein and construct are specifically included
in the definition, provided they have cytostatic or cytotoxic activity. For
the purpose of this definition, a substance that has "cytostatic or cytotoxic
activity" shall mean a substance that (a) has IN VITRO cytostatic or
cytotoxic activity against at least four discrete human malignant tumor cell
lines, (b) causes IN VIVO necrosis of subcutaneous methylcholanthrene-induced
murine fibrosarcoma upon systemic or intratumoral administration, and (c) has
significantly less IN VITRO cytostatic and/or cytotoxic activity against
normal cell lines than against malignant tumor cell lines.
"IMT-B" shall mean any molecule composed of a monoclonal antibody or
fragment thereof that binds preferentially to the surface of one or more human
breast cancer cell types rather than to the surfaces of most normal cells,
and that is linked to a peptide toxin or fragments thereof, provided that
such molecule is preferentially cytotoxic or cytostatic to human breast
cancer cells.
"IMT-O" shall mean any molecule composed of a monoclonal antibody or
fragment thereof that binds preferentially to the surface of one or more
ovarian cancer cell types rather than to the surfaces of most normal cells, and
that is linked to a peptide toxin or fragments thereof, provided that such
molecule is cytotoxic or cytostatic to human ovarian cancer cells.
"HME" shall mean any monoclonal antibody obtained either by hybridoma or
recombinant DNA technology or combinations thereof that binds within the core
and/or lipid A regions of, and neutralizes the toxic effects caused by, the
lipopolysaccharide in or derived from the cell walls of Gram-negative
bacteria.
Note: For purposes of the foregoing definitions, "Homologous," as
applied to proteins, shall mean that condition wherein a protein or protein
fragment contains consecutive sets of three or more consecutive amino acids,
each of which sets matches a
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<PAGE>
unique portion of the amino acid sequence of another protein or protein
fragment (such as, for example, IL-2, TNF and CSF-1), and wherein the total
number of amino acids in all of such sets equals 70 percent or more of the total
amino acids in the protein or fragment, the homologous nature of which is being
determined.
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<PAGE>
SCHEDULE E
Substitute Products
(intentionally left blank]
-32-
<PAGE>
SCHEDULE F
<TABLE>
<CAPTION>
Target Marketing
Planned Products Approval Date
---------------- ----------------
<S> <C>
Interleukin-2 July 31, 1989
Tumor Necrosis Factor July 31, 1990
Breast Cancer Immunotoxin January 31, 1991
Ovarian Cancer Immunotoxin January 31, 1991
Colony Stimulating Factor-1 April 30, 1991
Human Monoclonal Antibodies October 31, 1990
Against Endotoxins*
</TABLE>
- -------------------------------
* This product will be included only if $15,000 or more Units are sold
pursuant to the Prospectus.
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<PAGE>
Exhibit 10.601
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into as of this 12th day of February, 1987
between Chiron Corporation, a Delaware corporation (the "Company") and
William J. Rutter ("Director"),
WITNESSETH THAT:
WHEREAS, Director, a member of the Board of Directors of the
Company, performs a valuable service in such capacity for the Company; and
WHEREAS, the Board of Directors of the Company have adopted Bylaws
(the "Bylaws") providing for the indemnification of the directors of the
Company to the maximum extent authorized by Section 145 of the Delaware
General Corporation Law as amended ("Law"); and
WHEREAS, such Bylaws and the Law by their non-exclusive nature,
permit contracts between the Company and the members of its Board of
Directors with respect to indemnification of such directors; and
WHEREAS, in accordance with the authorization as provided by the
Law, the Company has purchased and presently maintains a policy or policies
of director's and officer's liability insurance ("D & O Insurance"), covering
certain liabilities which may be incurred by its directors and officers in
their performance as directors and officers of the Company; and
WHEREAS, as a result of recent developments affecting the terms,
scope and availability of D & O Insurance there exists general uncertainty as
to the extent of protection afforded members of the Board of Directors by
such D & O Insurance and by statutory and bylaw indemnification provisions;
and
WHEREAS, in order to induce Director to continue to serve as a
member of the Board of Directors of the Company, the Company has determined
and agreed to enter into this contract with Director;
NOW, THEREFORE, in consideration of Director's continued service as
a Director after the date hereof, the parties hereto agree as follows:
1. INDEMNITY OF DIRECTOR. The Company hereby agrees to hold
harmless and indemnify Director to the full
1.
<PAGE>
extent authorized or permitted by the provisions of the Law, as may be
amended from time to time.
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth
in Section 3 hereof, the Company hereby further agrees to hold harmless and
indemnify Director:
A. Against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by Director in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or on behalf of the Company) to which
Director is, was or at any time becomes a party, or is threatened to be made
a party, by reason of the fact that Director is, was or at any time becomes a
director, officer, employee or agent of the Company, or is or was serving or
at any time serves at the request of the Company as a director, officer,
employee or agent of another company, partnership, joint venture, trust or
other enterprise; and
B. Otherwise to the full extent as may be provided to
Director by the Company under the nonexclusivity provisions of Article VII,
Section 7.6, of the Bylaws of the Company and of the Law.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by the Company:
A. In respect to recompense paid to Director if it shall be
determined by a final judgment or other final adjudication that such
recompense was in violation of law;
B. On account of any suit in which judgment is rendered
against a Director for an accounting of profits made from the purchase or
sale by Director of securities of the Company pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto
or similar provisions of any federal, state or local statutory law;
C. On account of Director's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct; or
2.
<PAGE>
D. If a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful.
4. CONTRIBUTION. If the indemnification provided in Sections 1 and
2 is unavailable and may not be paid to Director for any reason other than
those set forth in paragraphs (A), (B) and (C) of Section 3, then in respect
to any threatened, pending or completed action, suit or proceeding in which
the Company is jointly liable with Director (or would be if joined in such
action, suit or proceeding), the Company shall contribute to the amount of
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Director
in such proportion as is appropriate to reflect (i) the relative benefits
received by the Company on the one hand and by the Director on the other hand
from the transaction from which such action, suit or proceeding arose, and
(ii) the relative fault of the Company on the one hand and of the Director on
the other hand in connection with the events which resulted in such expenses,
judgments, fines or settlement amounts, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand
and of the Director on the other hand shall be determined by reference to,
among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting
in such expenses, judgments, fines or settlement amounts. The Company agrees
that it would not be just and equitable if contribution pursuant to this
Section 4 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
the Company contained herein shall continue during the period director is a
director, officer, employee or agent of the Company (or is or was serving at
the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise)
and shall continue thereafter so long as Director shall be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact
that Director was a director of the Company or serving in any other capacity
referred to herein.
6. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Director of notice of the commencement of any action, suit or proceeding,
Director must, if a claim in respect thereof is to be made against the
Company under this
3.
<PAGE>
Agreement, notify the Company of the commencement thereof. Director's
omission so to notify the Company will relieve the Company from any liability
which it may have to Director under this Agreement. However, such omission
will not relieve the Company from any obligation it may have to Director
other than under this Agreement.
With respect to any such action, suit or proceeding as to which
Director notifies the Company of the commencement thereof:
A. The Company will be entitled to participate therein at its
own expense;
B. Except as otherwise provided below, to the extent that it
may wish, the Company, jointly with any other indemnifying party similarly
notified, will be entitled to assume the defense thereof, with counsel
satisfactory to Director. After notice from the Company to Director of the
Company's election to assume the defense as provided above, the Company will
not be liable to Director under this Agreement for any legal or other
expenses subsequently incurred by Director in connection with the defense
thereof, other than reasonable costs of investigation or as otherwise
provided below. Director shall have the right to employ counsel in such
action, suit or proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense
thereof shall be at the expense of Director unless (i) the employment of
counsel by Director has been authorized by the Company, (ii) Director shall
have reasonably concluded that there may be a conflict of interest between
the Company and Director in the conduct of the defense of such action or
(iii) the Company shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by
or on behalf of the Company or as to which Director shall have made the
conclusion provided for in (ii) above; and
C. The Company shall not be liable to indemnify Director
under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent. The Company shall not settle any
action or claim in any manner which would impose any penalty or limitation on
Director without Director's written consent. Neither the Company nor Director
will unreasonably withhold its consent to any proposed settlement.
4.
<PAGE>
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Director employs his own counsel
pursuant to Section 6(B)(i) through (iii) above, the Company shall advance to
Director, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred
in investigating or defending any such action, suit or proceeding within ten
(10) days after receiving from Director copies of invoices for such expenses.
(b) Director agrees that he will reimburse the Company for all
reasonable expenses paid by the Company in defending any civil or criminal
action, suit or proceeding against Director in the event and only to the
extent it shall be ultimately determined that Director is not entitled, under
the provisions of the Law, the Bylaws, this Agreement or otherwise, to be
indemnified by the Company for such expenses.
8. ENFORCEMENT.
A. The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce Director to continue as a director of the
Company, and acknowledges that Director is relying upon this Agreement in
continuing in such capacity.
B. In the event Director is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Company shall reimburse Director for all of
Director's reasonable fees and expenses in bringing and pursuing such action.
9. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
10. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
5.
<PAGE>
11. BINDING EFFECT. This Agreement shall be binding upon Director
and upon the Company, its successors and assigns, and shall inure to the
benefit of Director, his heirs, personal representatives and assigns and to
the benefit of the Company, its successors and assigns.
12. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
CHIRON CORPORATION
By /s/ Edward E. Penhoet
--------------------------------
Edward E. Penhoet,
President and Chief
Executive Officer
/s/ William J. Rutter
- -----------------------------------
William J. Rutter
Director
6.
<PAGE>
Exhibit 10.602
SUPPLEMENTAL BENEFITS AGREEMENT
This Agreement entered into this 21 day of July 1989, between Chiron
Corporation, a Delaware Corporation (the "Company"), and Dr. William J.
Rutter ("Executive").
WITNESSETH
WHEREAS, Executive has at the request of the Company agreed to
become an employee of Chiron and, to facilitate such employment, has ceased
to be a full time member of the faculty of the University of California
("University");
WHEREAS, Executive will suffer a loss of benefits under the
University's retirement program, as a result of his change of status with the
University and the Company wishes to compensate the Executive for such loss
of benefits;
NOW, THEREFORE, in consideration of the foregoing, it is agreed as
follows:
I. RETIREMENT AND SURVIVOR BENEFITS
1.1 The Company agrees to pay Executive a supplemental retirement
benefit (including survivor and co-annuitant benefits) equal to the benefit
that Executive would have been entitled to receive under the University of
California Retirement System ("UCRS") had he remained a full-time faculty
member of the University throughout his period of employment with the
Company ("Projected UCRS Benefit"), less the benefit that Executive actually
becomes entitled to receive under UCRS based on service rendered prior to his
termination of employment with the Company ("Actual UCRS Benefit").
1.2 For purposes of determining Executive's Projected and Actual
UCRS Benefits under Section 1.1, Executive will be assumed to have made the
maximum employee contributions that he would be eligible to make, including
any contributions required upon reimbursement with the University to
reinstate benefits previously refunded or forfeited under UCRS.
1.3 Executive's Projected UCRS Benefit will be computed in accordance
with the terms of UCRS as in effect on the date of this agreement, including
any amendments subsequently adopted to comply with the Tax Reform Act of 1986
and related technical correction legislation. For purposes of computing his
Projected UCRS Benefit, Executive's highest average permissible compensation
under UCRS shall be determined as if Executive continued to receive a full
time rate of pay from the University
1.
<PAGE>
through the date of his termination of employment with the Company equal to
the most recent rate he was paid as a full-time member of the faculty of the
University prior to the date of this Agreement increased by 6% per year from
the date of this Agreement.
1.4 Notwithstanding anything to the contrary herein, the maximum
payments hereunder by the Company in any twelve month period shall not exceed
$10,000.
II. PAYMENTS OF BENEFITS
Any benefit payable pursuant to Article I of this Agreement shall be
paid at the same time and in the same form and manner as payments are made to
Executive (or to his spouse or his co-annuitant) under UCRS.
III. OFFSET
Any benefit payable to Executive under Article I of this Agreement
shall be reduced by the actuarial equivalent of any benefits payable to the
Executive under any other retirement or supplemental retirement plan or
program established by the Company (other than the Salary Deferral Plan and
Trust of Chiron Corporation). For purposes of the preceding sentence, any
benefit which is payable to an estranged or former spouse of Executive
pursuant to an interlocutory or final decree of dissolution of marriage or
other order of any court arising out of an action for dissolution shall be
deemed payable to Executive.
IV. GENERAL PROVISIONS
4.1 NO ASSIGNMENT
No interest created by this Agreement may be sold, assigned,
transferred, conveyed, hypothecated, encumbered, anticipated or otherwise
disposed of and such interest shall not be subject to any liability or
obligation of Executive or his spouse or joint annuitant, nor to attachment,
garnishment, execution, or other legal process for payment of any claim
against any such person or his property.
4.2 NO EMPLOYMENT CONTRACT
This Agreement is not an employment contract and nothing
contained herein shall prohibit the adjustment from time to time of the terms
of employment of Executive, including his current compensation and fringe
benefits to which he may otherwise be entitled (except that no amendment may
be made to this Agreement other than as provided in Section 4.5, below). No
2.
<PAGE>
provision in this Agreement shall be construed to guarantee continued
employment to Executive.
4.3 INTERPRETATION
The interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of California. Any
disputes concerning this Agreement shall be subject to resolution in state or
federal courts in San Francisco, California, and all expenses shall be paid
by the party against whom or which a final judgement is entered.
4.4 NO FUNDING OBLIGATION
This Agreement shall not be construed to require the Company to
fund any of the benefits payable under this Agreement nor to require the
establishment of a trust and Executive's rights to benefits hereunder shall
be as a general unsecured creditor of the Company. The Company, in its sole
discretion, may make such arrangements as it desires to provide for the
payment of benefits hereunder, and no person shall have any claim against a
particular fund or asset owned by the Company or in which it has an interest
to secure the payment of the Company's obligations hereunder.
4.5 AMENDMENT
This Agreement and any provision hereof may not be changed,
waived, discharged or terminated except by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
4.6 ENTIRE AGREEMENT
This Agreement definitively restates the entire understandings
and representations between the parties hereto, whether written or oral, with
respect to the subject matter contained herein. There are no representations,
agreements, arrangements, or understandings, oral or written, between the
parties relating to the subject matter of this Agreement which are not fully
expressed herein.
4.7 HEADINGS
All headings herein are for convenience only and shall be
disregarded in construing the substance of the provisions of this Agreement.
3.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of July 21, 1989, at Emeryville, California.
CHIRON CORPORATION
By /s/ Greg Lawless
-------------------------------------
President and Chief Operating Officer
/s/ William J. Rutter
-------------------------------------
Dr. William J. Rutter
4.
<PAGE>
Exhibit 10.604
C H I R O N
September 11, 1992
Dr. Lewis T. Williams
3 Miraflores Lane
Tiburon, CA. 94920
Dear Rusty:
This letter confirms our conversations of last Friday and outlines the
proposed terms under which Chiron will engage you as a consultant and extend
to you an offer of employment effective upon the expected termination of the
consultancy in the spring of 1994.
CONSULTANCY
SCOPE. Effective immediately and continuing until March 31, 1994, and
thereafter, unless terminated by you or Chiron upon not less than thirty days
written notice, Chiron will engage you to act as a consultant to the Company.
The field of the consulting arrangement would be all areas of Chiron's
existing and future interest in developing human therapeutic products based
upon biological mechanisms of action. You would provide advice and
consultation regularly regarding the strategy, scientific and clinical
direction, and project oversight of all related research and product
development programs of the Company.
We expect to establish an internal coordinating group composed of senior
scientists, clinicians, and product managers responsible for all of our
activities in these areas. You would act as Chairman of this Committee and
Dr. Patricia Olson initially would take on the day-to-day management and
direction of these activities with responsibilities to the Committee for
executing its recommendations and advice. You would additionally participate
as appropriate in the deliberations of the Chiron Corporate Strategy
Committee, the group of executive officers and advisors responsible for
developing and monitoring the implementation of the overall business strategy
of Chiron and its affiliates worldwide. In this latter capacity, you will be
involved in our strategic decision making as an insider. This will constrain
your freedom to trade in Chiron stock and to pursue opportunities that
represent conflicts with our interests.
Chiron Corporation - 4560 Horton Street - Emeryville, CA - 94608-2916 -
510-655-8730
Law Department - General Fax: 510-654-5360 - Intellectual Property Fax:
510-655-3542
<PAGE>
Dr. Lewis T. Williams
September 11, 1992
Page Two
To capture the scope of these activities, we propose that your title, in
addition to Consultant, be Chair of the Biotherapeutics Advisory Committee,
Chiron Corporation.
Your activities on behalf of Chiron would be subject to your responsibilities
at UCSF and to your consulting positions with the Howard Hughes Medical
Center and LocalMed. Other than your directorship with Cor Therapeutics and
these consulting arrangements, your consulting arrangement with Chiron will
be exclusive within the field and, in the event of any future conflict, you
would agree to relinquish these conflicting positions within a reasonable
time if Chiron so requests.
CONSULTING FEES. We would pay a consulting fee of $40,000 per year,
quarterly in advance, based upon an assumed commitment of time of two days
per week, plus reimbursement of appropriate expenses. We recognize that your
initial time commitment will be less than this, and, accordingly, through
March 31, 1993, the consulting fee shall be paid at a rate of $20,000 per
year, based upon a commitment of one day per week. If and when you are able
to commit additional time, we expect to come to agreement on appropriate
increases in compensation.
STOCK OPTIONS. Our standard stock option program contemplates initial grants
upon hiring and annual grants thereafter based upon target awards and
performance. Chiron's annual option grant target for executive officers has
been approximately that number of shares that have a market value at the time
of grant equal to twice the recipient's annual base salary. Thus, the actual
number of shares varies with the market price of the stock. The awards are
made in August and based upon a multiplier of from 0% to 150% of the target
depending upon individual, group, and company performance.
We propose that your option program correspond generally with this approach,
but with an expanded initial grant to be made at the inception of the
consulting arrangement rather than upon acceptance of employment. Thus,
subject to Board approval, you would receive an initial grant of options on
40,000 shares and, assuming that you joined us as an employee in 1994, could
expect to have received options after five years of full time service on that
number of shares having a market value on dates of option grant equal to
approximately $4,500,000 or 90,000 shares based upon the current stock price.
The initial and subsequent grants would be at exercise prices equal to 85% of
then current fair market value and would have ten year terms from date of
each grant. The 15% discount equates to $300,000 on the initial grant and
$675,000 after five years of full service, under these assumptions.
<PAGE>
Dr. Lewis T. Williams
September 11, 1992
Page Three
Under our standard terms, each option grant vests ratably over four years of
full time equivalent service. In your case we propose that the initial grant
made to you would vest at a slower rate during the period of your
consultancy: at the rate of 2000 shares per year. Upon your commencement of
substantially full-time employment, the then unvested balance of the initial
option would begin to vest ratably over the ensuing five years. The initial
grant approach is justifiable from our perspective only on the assumption of
early full time employment. Accordingly, if you have not joined us on a full
time basis by September 30, 1994, Chiron would have the right to cancel all
or any part of the unvested portion of the initial grant. This approach
obviously gives you the same ultimate upside opportunity on the initial grant
as you would receive if you joined us now as an executive officer, but with
full vesting of the initial grant deferred and attenuated by one year to
permit your initial grant to be reconciled with the existing options
held by others. Upon commencement of full time service, you also would begin
participating in the standard annual grant program for executive officers.
EMPLOYMENT OPPORTUNITY
OFFER. We also confirm our desire that you join Chiron in an executive
officer position, with direct management responsibility for all
biotherapeutic research and clinical development activities at the earliest
practical date. We propose to confirm a organizational structure in which
these activities are placed in a separate business unit, Chiron Technologies,
of which you would be the President. Research and clinical activities in
other presently existing business units, i.e., oncology and vaccines, would
remain separate but you would participate in coordination and we would work
together to define the margins when you are more familiar with our programs
and people.
In this position, under our current management structure, you would be a
member of the Strategy Committee and the Emeryville Operating Committee and
would participate in the overall management and direction of the company
generally. Our current thinking is that we will recruit a senior executive
with broad pharmaceutical industry experience to serve as head of our
therapeutic operations worldwide. Your position would work closely with the
incumbent to build a strong and vital business.
Our offer of this position will remain open during the pendency of your
consulting arrangement with us.
<PAGE>
Dr. Lewis T. Williams
September 11, 1992
Page Four
SALARY. We expect that your annual base salary would be $225,000. We believe
that a significant portion of aggregate cash compensation should depend upon
performance. You would participate in our executive officer bonus program, in
which the current annual bonus potential is 75% of prior year base salary.
Bonus are awarded by the Board in February and are based upon individual,
group, and company performance. Last year the average bonus was approximately
60% of the target. On your proposed base salary, this would have resulted in
aggregate cash compensation of $326,000 ($225,000 + 0.60 x 0.75 x $225,000).
BONUS ACCRUAL. In addition, we would pay you a hiring bonus that would accrue
monthly during your consultancy at the rate of $100,000 per year. The hiring
bonus could be in the form of cash or, at your election, a deferred payment
obligation that could coordinated with your retirement and estate planning. In
the latter case, taxes can be deferred until you receive actual payment and a
variety of structures are possible to calculate interest or investment income
and to provide assurance of payment and even control by you over the manner
of investment of the principal and income.
EMPLOYMENT TERM. We each expect and intend that your employment with the
Company will extend over many years. Chiron recognizes the uncertainties
inherent in joining an entrepreneurial organization and therefore agree that,
in the event that the company terminates your status as an executive officer
other than for cause within the first five years of your employment, it will
permit you at your request to organize and direct a research program within
and funded by Chiron to be determined by you and approved by Chiron (which
approval shall not be unreasonably be withheld) for a transitional period of
up to three years, but in no event beyond five years from initial employment.
The purpose of any such program would be, in part, to serve as a basis for
your return to an academic or other non-commercial research environment and,
in part, to further legitimate scientific and commercial needs of the
Company. It is our mutual expectation that such a program would generate
independent grant funding and that Chiron's support of such a program would
not be required to exceed your salary and benefits and those of up to 25 full
time equivalent man-years of appropriate staff, with the staffing not to
exceed 12 man-years in the first year and declining ratably thereafter. All
proprietary rights relating to this program would be owned by Chiron. This
transitional arrangement is not intended to result in the acceleration of
existing stock options or the continuation of participation in executive
option or bonus programs. The terms of the arrangement will be specified in
an employment agreement to be negotiated prior to the commencement of your
employment.
<PAGE>
Dr. Lewis T. Williams
September 11, 1992
Page Five
We are eager to have you join with us in building a truly powerful healthcare
company based upon the competitive advantage of a premier scientific program.
If the foregoing is acceptable to you, please indicate your agreement by
signing a copy of this letter.
Very truly yours,
/s/ William J. Rutter
- -----------------------------------
William J. Rutter, Ph.D.
Chairman
Agreed:
/s/ Lewis T. Williams
- -------------------------------------
Lewis T. Williams, M.D., Ph.D.
<PAGE>
C H I R O N
July 15, 1994
Dr. Lewis T. Williams
3 Miraflores Lane
Tiburon, California 94920
Dear Rusty:
This letter revises in certain aspects and confirms the terms under
which Chiron Corporation will employ you as an executive director. Except to
the extent amended by this letter, the terms of the September 11, 1992 letter
(the "1992 Letter") remain in effect.
POSITION. We propose that you be elected Senior Vice President of
Chiron Corporation and President of Chiron Technologies. As such you would
have direct management responsibility for basic research and clinical
development activities, including our collaboration with third parties in
research oriented strategic clusters and relevant business development
activities. Certain research and clinical activities in other presently
existing business units, I.E., diagnostics, ophthalmics and vaccines, would
remain separate but you would participate in coordination and we would work
together to redefine the margins when you become more familiar with our
programs and people. It is our anticipation that you will have the major
responsibility for fundamental research and clinical development for Chiron.
SALARY. Your initial base salary would be $265,000. You would also
participate in our annual incentive compensation program for executive
officers which has the same essential characteristics as described in the
1992 Letter resulting in a potential cash compensation of up to $463,800.
BONUS ACCRUAL. We will pay you a hiring bonus calculated as provided in
the 1992 Letter.
STOCK OPTIONS. Subject to Board of Directors approval, Chiron will
grant to you a stock option covering 5,000 shares, in addition to the options
on 40,000 shares described in the 1992 Letter. The new option will have an
effective date and strike price determined by the date of commencement of
your employment. The stock option will be an incentive stock option to the
CHIRON CORPORATION - 4560 Horton Street - Emeryville, CA - 94608-2916 -
510-655-8730
LAW DEPARTMENT - General Fax: 510-654-5360 - Intellectual Property Fax:
510-655-3542
<PAGE>
Dr. Lewis T. Williams
July 15, 1994
Page Two
maximum extent permitted by law, would have a ten year term and would vest
ratably over the first four years of your employment. In addition, you would
begin participation in our annual stock option program for executive
officers, which has essentially the characteristics described in the 1992
Letter, with the first annual grant expected to be made in February 1995
prorated for the fraction of the twelve preceding months that you are an
employee. On the assumption that our annual option program remains unchanged,
and we have no current plans to change it, the expectations described in the
1992 Letter of aggregate stock option grants over the first five years of
full-time service covering shares having a market value of approximately $4.5
million remains correct although the actual number of shares would be lower
at the current stock price. Further, while the initial grant to you of
options of 40,000 shares was made at a discount to 85% of then existing fair
market value, the grant of an option of 5,000 shares and future annual option
grants will be made at then current fair market value, consistent with our
stock option plan and policies as generally applied and with current
treatment for stock options.
EMPLOYMENT TERM. We confirm the assurances provided in the 1992 Letter
regarding your right in the event that Chiron terminates your status as an
executive officer other than for cause within the first seven years of your
employment. In addition, at your election, the research program to be
supported by Chiron may be relocated to an academic or other noncommercial
research institution and may involve a research program that is independent
of Chiron's then existing programs, but which nevertheless should be subject
to review and approval by Chiron and which approvals will not be unreasonably
withheld. To the extent such program is conducted outside of Chiron, Chiron's
obligation is limited to amounts equal to your last salary and benefits and
the direct expense associated with the staffing actually directly engaged in
this program, including predominantly postdoctoral fellows, not to exceed 25
full-time equivalent man years in the aggregate or 12 full-time equivalent
man years in the first year declining ratably thereafter. Chiron would have
the right to acquire proprietary rights on commercial reasonable terms with
respect to any inventions generated pursuant to this program.
<PAGE>
Dr. Lewis T. Williams
July 15, 1994
Page Three
As a further alternative to such research program, either within or
outside Chiron, at your election Chiron would pay to you as a lump sum an
amount equal to one year of your base salary at the time of such termination.
If the foregoing is acceptable to you please indicate your agreement by
signing a copy of this letter.
Sincerely,
/s/ William J. Rutter
--------------------------------
William J. Rutter, Ph.D.
Chairman
AGREED:
/s/ Lewis T. Williams
- -------------------------------
Lewis T. Williams, M.D.
<PAGE>
C H I R O N
September 14, 1994
Dr. Lewis T. Williams
3 Miraflores Lane
Tiburon, California 94920
Dear Rusty:
At your request, the Company and you have agreed to the following
amendment to the provision regarding the payment to you of a $100,000 hiring
bonus in Dr. Rutter's September 11, 1992 letter to you, which amendment
replaces in its entirety such bonus provision:
1. In consideration of Chiron's paying a premium of one hundred
thousand dollars ($100,000) to purchase a fully paid policy of life
insurance, insuring your life, to U.S. Life Insurance Company, you agree to
assign said policy and the first $100,000 of the benefit payable thereunder
to Chiron pursuant to the terms of the attached form of Assignment of Life
Insurance Policy as Collateral Agreement. In order to carry out the intent of
this provision, you and Chiron agree to sign any and all documents required
to evidence the collateral assignment to Chiron of the $100,000.
2. You, on behalf of your heirs, executors, administrators, successors
and assigns, agree to indemnify, defend and hold harmless Chiron Corporation,
its successors, assigns, subsidiaries, affiliates, directors, officers,
representatives, agents and employees ("Chiron") from any and all claims,
liabilities, damages, charges, actions, causes of action, costs and expenses
(collectively "Claims") arising from the purchase and continuance of the life
insurance policy described in paragraph 1 and the collateral assignment
thereof including, but not be limited, to any trustee and administrative
fees, any federal, state or local tax liability owed as a result of the
purchase or continuance of the above-mentioned life insurance policy and any
costs and expenses including actual attorneys fees and costs of defending any
Claims.
Please indicate your concurrence with the above terms by signing below.
Sincerely,
/s/ William G. Green
- -----------------------------
William G. Green
Senior Vice President and
General Counsel
AGREED:
/s/ Lewis T. Williams
- ------------------------------
Lewis T. Williams, M.D.
CHIRON CORPORATION - 4560 Horton Street - Emeryville, CA - 94608-2916 -
510-655-8730
LAW DEPARTMENT - General Fax: 510-654-5360 - Intellectual Property Fax:
510-655-3542
<PAGE>
Chiron Corporation
CHIRON 4560 Horton Street
Emeryville, California 9460802916
510.655.8730
May 28, 1999
CONFIDENTIAL
Paul Hastings
3848A 26th Street
San Francisco, CA 94131
Dear Paul:
We are pleased to confirm the terms of our offer to you as President, BioPharma
Commercial at Chiron Corporation, reporting to Sean Lance. You will be elected
as a corporate Vice President and confirmation of your role as an executive
officer of Chiron will take place at the next Board of Directors meeting. You
will be a member of Chiron's Executive Committee.
Your starting salary will be $325,000 per annum. You will be eligible to
participate in Chiron's Annual Incentive Plan (AIP) program. The results of the
company, the BioPharma Commercial division and your own performance during the
calendar year determine awards under this program. You will be eligible for an
award of between 0 and 120% of your base salary. Your award for 1999 will be
prorated according to your employment date.
You will be eligible to participate in our stock option program. Subject to the
approval of the Board of Directors, we will award you a stock option grant of
180,000 shares to purchase Chiron common stock. Of the total, 100,000 option
shares will vest over a four-year period, with the first 25% of the shares
vesting at the one-year grant anniversary and the other 75% vesting on a
pro-rated monthly basis over the remaining three years of the vesting period.
The remaining 80,000 shares will vest 100% on the fourth anniversary of the
grant date. The exercise price of the option will be set at the fair market
value (as defined in the Option Plan) of a share of Chiron stock on the date the
option is approved. We expect the grant to be approved and effective by the end
of the month in which your employment begins. Beginning in year 2000 you will be
eligible for further stock option grants based on your performance.
We are prepared to make you a loan of $150,000 which must be used exclusively
for the purchase of your principal residence and which must be secured by a
second deed of trust on that residence. It will be interest free and will be
forgiven $50,000 per year beginning with the first anniversary of your
employment. The loan is repayable within 90 days should you voluntarily resign.
If your employment is terminated for reason other than cause, amounts remaining
on the loan will be forgiven at the end of your employment with Chiron. Any
taxes arising from imputed income or loan forgiveness are your responsibility.
In the event your employment is severed for reason other than cause, you will be
eligible for a minimum severance benefit of one year of base salary plus bonus,
the bonus portion being calculated as the average of the prior 2 years bonus
payments. This benefit is in lieu of any other Chiron severance plan payments
you might be due.
<PAGE>
The information sheets following your offer letter contain some of the
highlights of Chiron's benefits programs. You should note that, while this offer
is being made under the terms of our current benefits and compensation programs,
changes do occur from time to time and any system-wide changes that occur will
apply to you as well.
Some of the benefit programs are effective immediately upon your employment,
while others are dependent upon established enrollment periods. Your group
medical insurance benefits generally start on the first day of the month
FOLLOWING your date of hire. If, however, your date of hire is the first
business day of the month, your coverage becomes effective on that date. Note
also that, with few exceptions, Chiron extends benefits coverage to qualified
family members, including opposite- and same-sex domestic partners.
As a part of Chiron's routine medical surveillance program, employees with
certain project assignments may be advised to provide a baseline blood sample
for archival storage. The Chiron Occupational Health Department will notify you
if a baseline blood draw is recommended.
This offer is contingent upon your ability, as required by federal law, to
establish your employment eligibility as a U.S. citizen, a U.S. lawful permanent
resident, or an individual specifically authorized for employment in the U.S. by
the Immigration and Naturalization Service.
Under California law, employment with Chiron is not for any specified term and
can be terminated at any time for any reason by you or Chiron. Any contrary
representations that have been made or may be made to you are superseded by this
offer. When you accept the offer, the terms described in this letter and the
Chiron Employee Invention and Confidential Information Agreement shall
constitute the terms of your employment.
We are delighted that you have accepted our offer. Sean Lance, Rusty Williams
and all the other executives you have met look forward to your joining the team.
We look forward to your start date of some time between June 14 and July 1. As
soon as you have a sense of when that will be, let us know. Please call me if
you have any questions on the terms of the offer as outlined. Otherwise, please
sign and return this at your earliest convenience.
Sincerely,
CHIRON CORPORATION
/s/ LINDA SHORT
- -----------------------------------
Linda Short
Vice President, Corporate Resources
Enclosures
cc: Sean Lance
Please indicate your understanding of the terms of this offer and your
acceptance of this offer by signing this letter and returning the letter to me
as soon as possible.
/s/ PAUL J. HASTINGS 5/29/99
- -------------------------------------------
Name Date
<PAGE>
CHIRON CORPORATION
EMPLOYEE BENEFITS AS OF 1/1/99
INSURANCE BENEFITS
MEDICAL INSURANCE Chiron offers several medical plans to eligible
employees and their eligible dependents (spouse,
domestic partner and/or children). All medical plans
include prescription and vision benefits. Employee
contributions are pretax.
DENTAL INSURANCE Chiron offers 2 dental plans to eligible employees
and their eligible dependents (spouse, domestic
partner and/or children). Employee contributions are
pretax.
LIFE INSURANCE Eligible employees can purchase coverage for
themselves of $10,000, or 1, 2, 3, 4 or 5 times
annual salary. The maximum coverage is $800,000 for
the first 2 times salary and an additional $800,000
for the next 3 times salary. Employee contributions
are pretax.
DEPENDENT LIFE Eligible employees can purchase life insurance
INSURANCE coverage for eligible dependents on an after-tax
basis. Options include $10,000, $20,000 or $50,000
for spousal coverage and $5,000 or $10,000 for
children.
ACCIDENTAL DEATH & Eligible employees can purchase coverage for
DISMEMBERMENT themselves of 1, 2, 3, 4 or 5 times annual salary.
The maximum coverage is $800,000 for the first 2
times salary and an additional $800,000 for the next
3 times salary. Employee contributions are pretax.
TRAVEL ACCIDENT Chiron provides Travel Accident Insurance coverage of
3 times annual salary at no cost to employees. This
provides 24-hour coverage for travel to and from work
or on company business.
SHORT-TERM Through the short-term disability program, Chiron
DISABILITY provides eligible employees with 100% of salary for
the first 30 calendar days less state disability or
similar payments, and 80% of salary for the next 150
days of disability less state disability or similar
payments. Chiron provides this coverage at no cost to
the employee.
LONG-TERM For eligible employees disabled for more than 180
DISABILITY days, Chiron provides 60% of monthly salary up to
$18,000 per month. Chiron provides this coverage at
no cost to the employee. Eligible employees also have
the option to purchase an additional 6 2/3% of
monthly salary up to $20,000 per month, reduced by
any other income benefits.
WORKERS' All employees are covered by Chiron's Workers'
COMPENSATION Compensation insurance.
INVESTMENT PROGRAMS
401(K) PLAN Participation in the Chiron Corporation 401(k) plan
is available to eligible employees on the first of
the month following date of hire or immediately, if
date of hire is the first business day of the month.
Employees may designate pre-tax contributions of 1%
to 15% of salary. The Company provides a maximum 4%
match on employee contributions and the match is
vested immediately. For newly eligible employees
there is a waiting period of 1 year before matching
contributions are given.
EMPLOYEE STOCK Eligible employees may purchase Chiron stock at a
discount below market price.
<PAGE>
PURCHASE PLAN Participation in the plan depends upon the employee's
date of hire. Employees can contribute to this
program from 3% to 15% of their base salary on an
after-tax basis.
STOCK OPTION PLAN Chiron has a Stock Option Program. The granting of
options to eligible employees is subject to Board of
Directors' approval and program guidelines.
TIME-OFF BENEFITS
EXECUTIVE TIME OFF Each January 1, executive employees receive an
allocation of 4 weeks of time off. The allocation may
be taken in whole or in part anytime throughout the
year. Any unused time at the end of the year will not
accrue from year to year. No reporting of time off is
needed. There will be no pay out for unused time off
either at the end of the year or at termination.
FIXED HOLIDAYS Eligible employees receive up to 8 paid holidays per
year.
LEAVE OF ABSENCE Chiron grants leaves of absence to accommodate
employees' medical/maternity disability and family or
personal needs.
OTHER BENEFITS
FLEXIBLE SPENDING Chiron offers Health Care and Dependent Care
reimbursement accounts to eligible employees. These
accounts give employees the advantage of paying for
eligible health and dependent care expenses with
pretax dollars.
EMPLOYEE ASSISTANCE Chiron provides a confidential counseling and
PROGRAM referral service to all employees and their families.
EDUCATIONAL Regular full-time employees are eligible, after 6
ASSISTANCE months of service, for up to $2,000 per year in
reimbursement of tuition, textbooks, and lab expenses
for classes directly related to their jobs.
CREDIT UNION Regular full-time and part-time employees and members
of their families or household are eligible to join.
PREPAID LEGAL A Prepaid Legal Plan is available to eligible
employees to provide affordable, basic legal
services. Employees pay for this benefit on an
after-tax basis.
DEPENDENT CARE Eligible employees are provided with this counseling,
CONNECTION education and referral service which provides
information regarding child care, elder care,
adoption and prenatal planning.
NOTE: ELIGIBLE EMPLOYEES ARE DEFINED AS REGULARLY SCHEDULED TO WORK
20 HOURS OR MORE PER WEEK. COVERAGE FOR MOST BENEFITS IS EFFECTIVE THE
FIRST OF THE MONTH FOLLOWING DATE OF HIRE, OR IMMEDIATELY IF THE DATE OF
HIRE IS THE FIRST BUSINESS DAY OF THE MONTH, UNLESS OTHERWISE NOTED.
<PAGE>
Exhibit 10.701
EXECUTION COPY
- --------------------------------------------------------------------------------
INVESTMENT AGREEMENT
Among
CIBA-GEIGY LIMITED,
a Swiss corporation
CIBA-GEIGY CORPORATION,
a New York corporation
CIBA BIOTECH PARTNERSHIP, INC.
a Delaware corporation
and
CHIRON CORPORATION,
a Delaware corporation
Dated as of November 20, 1994
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
The Offer and the Transfer of Contributed Businesses
SECTION 1.01. The Offer. . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Company Actions. . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.03. Purchase and Sale of the Ciba Biocine Business and the
Diagnostics Shares . . . . . . . . . . . . . . . . . . 6
SECTION 1.04. Closing. . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II
Conditions to Closing
SECTION 2.01. Obligations of Ciba, CCorp and Holdings with respect
to the Closing . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.02. Obligations of the Company with respect to the
Closing. . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of the Company. . . . . . 12
SECTION 3.02. Representations and Warranties of Ciba, CCorp and
Holdings. . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.03. Representations and Warranties of Ciba Relating to
Diagnostics. . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.04. Representations and Warranties of Ciba and CCorp
Relating to Biocine. . . . . . . . . . . . . . . . . . 39
SECTION 3.05. Survival of Representations regarding Diagnostics. . . . 41
SECTION 3.06. Indemnification by Ciba with regard to Diagnostics
Representations. . . . . . . . . . . . . . . . . . . . 41
SECTION 3.07. Indemnification Procedures . . . . . . . . . . . . . . . 42
SECTION 3.08. Tax Indemnity regarding Diagnostics. . . . . . . . . . . 43
ARTICLE IV
Covenants Relating to Conduct of Business
of the Company and Diagnostics
SECTION 4.01. Conduct of Business. . . . . . . . . . . . . . . . . . . 44
SECTION 4.02. No Solicitation. . . . . . . . . . . . . . . . . . . . . 50
(i)
<PAGE>
SECTION 5.01. Consolidation. . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.02. Access to Information; Confidentiality . . . . . . . . . 54
SECTION 5.03. Reasonable Efforts; Notification . . . . . . . . . . . . 55
SECTION 5.04. Rights Agreement . . . . . . . . . . . . . . . . . . . . 56
SECTION 5.05. Fees and Expenses. . . . . . . . . . . . . . . . . . . . 56
SECTION 5.06. Public Announcements . . . . . . . . . . . . . . . . . . 58
SECTION 5.07. Stockholder Litigation . . . . . . . . . . . . . . . . . 58
SECTION 5.08. CCD Employment Arrangements. . . . . . . . . . . . . . . 58
SECTION 5.09. Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.10. 1988 Agreement . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.11. Ongoing Diagnostics Arrangements . . . . . . . . . . . . 60
SECTION 5.12. Ciba Guarantee; Revolving Credit Facility. . . . . . . . 61
SECTION 5.13. Stockholder Approval of Share Issuances. . . . . . . . . 62
SECTION 5.14. Employee Stock Option Arrangements . . . . . . . . . . . 63
SECTION 5.15. Diagnostics Balance Sheet. . . . . . . . . . . . . . . . 65
SECTION 5.16. Research and Development Agreement . . . . . . . . . . . 65
SECTION 5.17. Excess Parachute Payments. . . . . . . . . . . . . . . . 65
ARTICLE VI
Termination, Amendment and Waiver
SECTION 6.01. Termination. . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.02. Effect of Termination. . . . . . . . . . . . . . . . . . 67
SECTION 6.03. Amendment. . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 6.04. Extension; Waiver. . . . . . . . . . . . . . . . . . . . 67
SECTION 6.05. Procedure for Termination, Amendment, Extension
or Waiver. . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE VII
General Provisions
SECTION 7.01. Nonsurvival of Representations and Warranties. . . . . . 68
SECTION 7.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 7.03. Definitions. . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 7.04. Interpretation . . . . . . . . . . . . . . . . . . . . . 70
SECTION 7.05. Counterparts . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.06. Entire Agreement; No Third-Party Beneficiaries . . . . . 71
SECTION 7.07. Governing Law. . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.08. Assignment . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 7.09. Enforcement. . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
(ii)
<PAGE>
INVESTMENT AGREEMENT dated as of November 20, 1994 (this
"Agreement"), among CIBA-GEIGY LIMITED, a Swiss corporation
("Ciba"), CIBA-GEIGY CORPORATION, a New York corporation and a
wholly-owned subsidiary of parent ("CCorp"), CIBA BIOTECH
PARTNERSHIP, INC., a Delaware corporation and an indirectly
wholly-owned subsidiary of Ciba ("Holdings"), and CHIRON
CORPORATION, a Delaware corporation (the "Company").
WHEREAS the respective Boards of Directors of Ciba and the Company
have determined to enter into a strategic partnership in the area of
biotechnology under which the two companies will enter into various
collaborations, the Company will remain an autonomous and entrepreneurial
business and Ciba will make substantial investments in the Company so as to
enhance its capabilities for growth and strategic success;
WHEREAS the respective Boards of Directors of Holdings and the Company
have approved the strategic partnership, including an initial minority equity
investment in the Company by Holdings on the terms and subject to the conditions
set forth in this Agreement in furtherance of such strategic partnership;
WHEREAS Ciba and CCorp propose to cause Holdings to make a tender
offer (as it may be amended from time to time as permitted under this Agreement
with the Company's consent if required hereby, the "Offer") to purchase
11,860,467 shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock"), at a price per share of Common Stock of $117 net to the seller
in cash (such price, as may hereafter be increased, the "Offer Price") (such
11,860,467 shares representing approximately 37.33% (the "Percentage Factor") of
the outstanding shares of Common Stock, excluding any shares of Common Stock
held by Ciba or its Affiliates, before giving effect to the transactions
contemplated by this Agreement), upon the terms and subject to the conditions
set forth in this Agreement; and the Board of Directors of the Company has
approved the Offer and the other transactions contemplated hereby and is
recommending that the Company's stockholders who wish to receive cash for their
shares of Common Stock accept the Offer;
<PAGE>
2
WHEREAS Ciba and CCorp further propose to cause Holdings to transfer
to the Company the Ciba Biocine Business and the Diagnostics Shares (each as
defined below) as consideration for 6,600,000 newly issued shares of Common
Stock (the "New Shares") to be purchased by Holdings in accordance with the
terms hereof;
WHEREAS Ciba, CCorp, Holdings and the Company desire to make certain
representations, warranties, covenants and agreements and also to prescribe
various conditions in connection with the transactions contemplated hereby; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, each of Ciba, CCorp, Holdings and the Company has entered into the
Ancillary Agreements to which it is a party.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement and in the Ancillary
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
THE OFFER AND THE TRANSFER OF CONTRIBUTED BUSINESSES
SECTION 1.01. THE OFFER. (a) Subject to the provisions of this
Agreement, as promptly as practicable, but in no event later than five business
days after the date of this Agreement, Holdings shall, and Ciba and CCorp shall
cause Holdings to, commence the Offer. The obligation of Holdings to, and of
Ciba and CCorp to cause Holdings to, commence the Offer and accept for payment,
and pay for, any shares of Common Stock tendered pursuant to the Offer shall be
subject to the conditions set forth in Exhibit A (any of which may be waived by
Holdings in its sole discretion) and to the terms and conditions of this
Agreement. Holdings expressly reserves the right to modify the terms of or
extend the Offer, except that, without the consent of the Company (such consent
to be authorized by the Board of Directors of the Company), unless the Company
exercises any of its rights under the second sentence of Section 4.02(b),
Holdings shall not (i) change the number of shares of Common
<PAGE>
3
Stock subject to the Offer, (ii) reduce the Offer Price, (iii) modify or add to
the conditions set forth in Exhibit A, (iv) change the form of consideration
payable in the Offer, (v) waive the Minimum Tender Condition set forth in
Exhibit A or (vi) otherwise amend the Offer in any manner adverse to the
Company's stockholders. Subject to the terms and conditions thereof, the Offer
shall expire at midnight New York City time on the date that is 20 business days
from the date the Offer is first published or sent to holders of Common Stock;
PROVIDED, HOWEVER, that (i) unless the Company otherwise agrees, Holdings shall
extend the Offer for an additional 10 business days if on the last day of such
20 business day period (or, if later, on the first day that all conditions to
Holding's obligation to accept for payment, and pay for, shares of Common Stock
have been satisfied or waived), fewer than 95% of the outstanding shares of
Common Stock (other than outstanding shares of Common Stock which cannot be
tendered because of restrictions under Section 16(b) of the Exchange Act and
shares of Common Stock that are beneficially owned by Ciba or its Affiliates)
have been tendered pursuant to the Offer and (ii) without the Company's consent,
Holdings may (A) extend the Offer, if at the scheduled expiration date of the
Offer any of the conditions to Holding's obligation to accept for payment, and
pay for, shares of Common Stock shall not have been satisfied or waived, until
such time as such conditions are satisfied or waived, (B) extend the Offer for
any period required by any rule, regulation, interpretation or position of the
Securities and Exchange Commission or the staff thereof (the "SEC") applicable
to the Offer and (C) extend the Offer for any reason on one or more occasions
for an aggregate period of not more than 5 business days beyond the latest
expiration date that would otherwise be permitted under clause (A) or (B) of
this sentence.
(b) On the date of commencement of the Offer, Ciba and Holdings shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer, which shall contain an offer to purchase and a related letter of
transmittal and summary advertisement (such Schedule 14D-1 and the documents
included therein pursuant to which the Offer will be made, together with any
supplements or amendments thereto, the "Offer Documents"). Ciba and Holdings
agree that the Offer Documents shall comply as to form in all material respects
with the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder, and that the Offer
<PAGE>
4
Documents on the date first published, sent or given to the Company's
stockholders shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that no representation is made by Ciba or
Holdings with respect to information supplied by the Company specifically for
inclusion in the Offer Documents. Each of Ciba, Holdings and the Company agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and each of Ciba and Holdings further
agrees to take all steps necessary to amend or supplement the Offer Documents
and to cause the Offer Documents as so amended or supplemented to be filed with
the SEC and to be disseminated to the Company's stockholders, in each case as
and to the extent required by applicable Federal securities laws. The Company
and its counsel shall be given a reasonable opportunity to review the Offer
Documents and all amendments and supplements thereto prior to their filing with
the SEC or dissemination to stockholders of the Company. Ciba and Holdings agree
to provide the Company and its counsel any comments Ciba, Holdings or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt of such comments.
(c) Ciba and CCorp shall provide or cause to be provided to Holdings
on a timely basis the funds necessary to accept for payment, and pay for, any
shares of Common Stock that Holdings becomes obligated to accept for payment,
and pay for, pursuant to the Offer.
SECTION 1.02. COMPANY ACTIONS. (a) The Company hereby approves of and
consents to the Offer and represents that the Board of Directors of the Company,
at a meeting duly called and held, duly and unanimously adopted resolutions
approving this Agreement, the Ancillary Agreements, the Offer and the sale of
the New Shares to Holdings as contemplated hereby, determining subject to
Section 4.02(b) that this Agreement and the transactions contemplated hereby and
by the Ancillary Agreements, including the Offer and the transfer of the Ciba
Biocine Business and the Diagnostics Shares, are fair to, and in the best
interests of, the Company's stockholders and recommending that those
stockholders who wish to receive cash for their shares of Common Stock accept
the Offer and
<PAGE>
5
tender their shares pursuant to the Offer; PROVIDED that the Board of Directors
may withdraw such recommendation as provided in Section 4.02(b). The Company
represents that its Board of Directors has received the opinions of Morgan
Stanley & Co. and Robertson, Stephens & Co. that the transactions contemplated
by this Agreement, when taken together, are fair to the Company's stockholders,
other than Ciba and its Affiliates, from a financial point of view, and that a
complete and correct signed copy of each such opinion has been delivered by the
Company to Ciba.
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendation described in
paragraph (a) and shall mail the Schedule 14D-9 to the stockholders of the
Company. The Company agrees that the Schedule 14D-9 shall comply as to
form in all material respects with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder and, on the date filed with the SEC
and on the date first published, sent or given to the Company's stockholders,
shall not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that no representation is made by the Company with
respect to information supplied by Ciba, CCorp or Holdings specifically for
inclusion in the Schedule 14D-9. Each of the Company, Ciba, CCorp and Holdings
agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 if and to the extent that such information shall have become
false or misleading in any material respect, and the Company further agrees to
take all steps necessary to amend or supplement the Schedule 14D-9 and to cause
the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and
disseminated to the Company's stockholders, in each case as and to the extent
required by applicable Federal securities laws. Ciba and its counsel shall be
given a reasonable opportunity to review the Schedule 14D-9 and all amendments
and supplements thereto prior to their filing with the SEC or dissemination to
stockholders of the Company. The Company agrees to provide Ciba and its counsel
in writing with any comments the Company or its counsel may receive from the SEC
or its staff with respect to the Schedule 14D-9 promptly after the receipt of
such comments.
<PAGE>
6
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Holdings promptly with mailing labels containing the
names and addresses of the record holders of Common Stock as of a recent date
and of those persons becoming record holders subsequent to such date, together
with copies of all lists of stockholders, security position listings and
computer files and all other information in the Company's possession or control
regarding the beneficial owners of Common Stock, and shall furnish to Holdings
such information and assistance (including updated lists of stockholders,
security position listings and computer files) as Ciba may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents, Ciba, CCorp and Holdings and their agents shall
hold in confidence the information contained in any such labels, listings and
files, will use such information only in connection with the Offer and the other
transactions contemplated hereby and, if this Agreement shall be terminated,
will deliver, and will use their beat efforts to cause their agents to deliver,
to the Company all copies of such information then in their possession or
control.
SECTION 1.03. PURCHASE AND SALE OF THE CIBA BIOCINE BUSINESS AND THE
DIAGNOSTICS SHARES. (a) On the terms and subject to the conditions of this
Agreement, subject to Section 1.03(b), the Company shall purchase from Ciba,
CCorp or a subsidiary of Ciba, and Ciba, CCorp or a subsidiary of Ciba shall
transfer and deliver to the Company, the Ciba Biocine Business and the
Diagnostics Shares collectively, the "Contributed Businesses"), in consideration
for which the Company shall issue, sell, transfer and deliver to Holdings
6,600,000 New Shares, in each case as described below in Section 1.04. As used
herein "Ciba Biocine Business" shall mean the JV US Holdings Shares, the JV Vax
Shares and all right, title and interest of Ciba, CCorp and Ciba's subsidiaries
in any intangible assets held for the benefit of such entities by Ciba and its
subsidiaries. At the Closing, Ciba and the Company shall enter into an
agreement, in form and substance reasonably satisfactory to Ciba and the
Company, pursuant to which Ciba will agree to indemnify the Company and its
affiliates and hold then harmless from all liability for taxes of Ciba or any
other person which is or has been affiliated with Ciba (other than JV US
Holdings or the Biocine Company or any subsidiary of the Biocine Company)
resulting from JV US Holdings or any subsidiary thereof having been a member of
a
<PAGE>
7
combined, consolidated or unitary group on or prior to the Closing Date.
(b) Notwithstanding anything herein to the contrary, if any of the
representations and warranties of Ciba, CCorp or Holdings set forth in Section
3.03 of this Agreement that are qualified as to materiality are not true and
correct as of the date hereof or as of the date five business days prior to the
Closing, and are not reasonably expected by Ciba, CCorp or Holdings as of the
fifth business day prior to the Closing to be true and correct as of the
Closing, or any of the representations and warranties of Ciba, CCorp or Holdings
set forth in such Section 3.03 that are not so qualified are not true and
correct in all material respects as of the date hereof or as of the date five
business days prior to the Closing, and are not reasonably expected by Ciba,
CCorp or Holdings as of the fifth business day prior to the Closing to be true
and correct as of the Closing (or, in each case, with respect to representations
and warranties that expressly relate to an earlier date, as of such date) (any
such occurrence being a "Diagnostics Revaluation Event"), then Ciba shall so
notify the Company in writing on or prior to such fifth business day prior to
the Closing. Upon delivery to the Company of a notice to such effect, Ciba and
the Company shall negotiate in good faith concerning the value of the loss or
damage to the Diagnostics business resulting from the Diagnostics Revaluation
Event (the "Diagnostics Makeup Amount"). If Ciba and the Company are not able to
agree on such Diagnostics Makeup Amount prior to the Closing, either party may
initiate arbitration of the Diagnostics Makeup Amount, in which event Ciba and
the Company shall promptly agree upon an internationally recognized investment
banking or appraisal firm (the "Diagnostics Arbitrator"), and the Diagnostics
Arbitrator shall consider submissions of both parties and then determine the
amount of the Diagnostics Makeup Amount, which may be zero (the "Diagnostics
Makeup Determination"). The Diagnostics Makeup Determination shall be final and
binding upon all the parties hereto.
SECTION 1.04. CLOSING. The closing of the purchase and sale of the
Diagnostics Shares and the Ciba Biocine Business (the "Closing") shall be held
at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue,
New York, New York or such other place as the parties shall agree, immediately
following the acceptance for payment of shares of Common Stock pursuant to the
Offer. The date on which the Closing shall occur is
<PAGE>
8
hereinafter referred to as the "Closing Date". At the Closing,
(i) Ciba and CCorp shall deliver or cause to be delivered to the
Company certificates representing the Diagnostics Shares, duly endorsed in
blank or accompanied by stock powers duly endorsed in blank in proper form
for transfer, with appropriate transfer stamps, if any, affixed; PROVIDED,
HOWEVER, that if (x) a Diagnostics Revaluation Event shall have occurred
and Ciba and the Company shall have agreed upon the Diagnostics Makeup
Amount, in addition to delivering the Diagnostics Shares, in accordance
with Section 1.03(b) Ciba and CCorp shall promptly after reaching such
agreement pay to the Company an amount in cash equal to the Diagnostics
Makeup Amount by wire transfer of immediately available funds to an account
designated at least two business days prior to the Closing by the Company
or (y) a Diagnostics Revaluation Event shall have occurred and Ciba and the
Company shall not have agreed upon the Diagnostics Makeup Amount, in
addition to delivering the Diagnostics Shares, Ciba and CCorp shall deliver
a written undertaking to pay or to cause Holdings promptly after
determination of the Diagnostics Makeup Amount (by the Diagnostics
Arbitrator, if applicable) to pay to the Company an amount in cash equal
to the Diagnostics Makeup Amount by wire transfer of immediately available
funds to an account designated at the Closing by the Company; and
(ii) Ciba and CCorp shall deliver or cause to be delivered to the
Company (x) certificates representing the JV US Holdings Shares and the JV
Vax Shares, in each case duly endorsed in blank or accompanied by stock
powers duly endorsed in blank in proper form for transfer, with appropriate
transfer stamps, if any, affixed and (y) appropriate transfer documentation
for all other property within the definition of Ciba Biocine Business;
(iii) the Company shall deliver or cause to be delivered to Holdings
certificates representing 6,600,000 New Shares; and
(iv) Ciba and the Company shall execute, or cause one or more
wholly owned subsidiaries to execute, on or before the Closing, an
agreement in form and substance
<PAGE>
9
reasonably satisfactory to Ciba and the Company which provides as follows:
(1) Ciba and its subsidiaries will be released from all
liabilities and obligations (the "Ciba Biocine Liabilities") with
respect to (x) their equity interests in the Biocine Company and JV
Vax and their subsidiaries, including with respect to any general
partner liability, and (y) existing agreements related to the Biocine
Venture except for existing licenses and as otherwise set forth on
Schedule 1.04(1);
(2) the Company, or a subsidiary thereof immediately after the
Closing, shall assume or retain, as applicable, the Ciba Biocine
Liabilities;
(3) the Biocine Company and JV Vax and their subsidiaries shall
not be obligated to repay any amounts contributed to them by Ciba or
its subsidiaries whether designated as capital contributions,
advances, excess funding of research and development or otherwise
except that the amounts funded by Ciba or its subsidiaries (with
respect to which equal payments were not made by the Company or its
subsidiaries) to the Biocine Venture in accordance with the Amendment
to the Biocine Joint Venture Agreement effective as of January 1, 1992
(the "1992 Biocine Amendment"), between Chiron Biocine Corporation and
Ciba-Geigy Biocine Corporation shall be repaid by the Company or its
subsidiaries at Closing, and Ciba and its subsidiaries shall be
relieved of any obligation to contribute, advance or fund any such
amounts after the Closing Date. The Company shall not draw any such
additional amounts under the 1992 Biocine Amendment after the date
hereof.
ARTICLE II
CONDITIONS TO CLOSING
SECTION 2.01. OBLIGATIONS OF CIBA, CCORP AND HOLDINGS WITH RESPECT TO
THE CLOSING. The obligation of Ciba, CCorp and Holdings to consummate the
transactions contemplated to occur at the Closing are subject to the
<PAGE>
10
satisfaction (or waiver by Ciba) as of the Closing of the following conditions:
(a) Holdings shall have accepted for payment shares of Common Stock
pursuant to the Offer in accordance with this Agreement.
(b) No statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order enacted,
entered, promulgated, enforced or issued by any Federal, state, local or foreign
government or any court of competent jurisdiction, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign (a "Governmental Entity") or other legal restraint or prohibition
preventing the purchase and sale of the Diagnostics Shares or the Ciba Biocine
Business or any of the other transactions contemplated hereby or by the
Ancillary Agreements to occur by the Closing shall be in effect.
(c) The Commissioner of Corporations of the State of California shall
have issued a permit qualifying the offer and sale to Holdings of the New Shares
or such offer and sale shall be exempt from such qualification under the
California Corporate Securities Law of 1968, as amended.
(d) The Company shall have furnished to Ciba the opinion of counsel,
who may be the general counsel of the Company, in form and substance reasonably
satisfactory to Ciba, to the effect that the New Shares have been duly
authorized and validly issued and, when issued and delivered to Ciba, will be
fully paid and nonassessable.
SECTION 2.02. OBLIGATIONS OF THE COMPANY WITH RESPECT TO THE CLOSING.
The obligation of the Company to consummate the transactions contemplated to
occur at the Closing are subject to the satisfaction (or waiver by the Company)
as of the Closing of the following conditions:
(a) Holdings shall have accepted for payment shares of Common Stock
pursuant to the Offer in accordance with this Agreement.
(b) The representations and warranties of Ciba, CCorp and Holdings
set forth in this Agreement (other than with respect to the representations and
warranties set forth in Section 3.03 hereof) and in the Ancillary Agreements
<PAGE>
11
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, as of the date
hereof and as of the time of the Closing as though made as of such time, except
to the extent such representations and warranties expressly relate to an earlier
date (in which case such representations and warranties qualified as to
materiality shall be true and correct, and those not so qualified shall be true
and correct in all material respects, on and as of such earlier date) and the
Company shall have received a certificate to such effect dated the Closing Date
and executed by a duly authorized officer of Ciba. Each of Ciba, CCorp and
Holdings shall have performed or complied in all material respects with all
obligations and covenants required by this Agreement and the Ancillary
Agreements to be performed or complied with by Ciba, CCorp and Holdings by the
time of the Closing.
(c) There shall not be threatened or pending by any Governmental
Entity any suit, action or proceeding, which has a reasonable likelihood of
success, and there shall not be pending by any other Person any suit, action or
proceeding, which has a substantial likelihood of success, (i) seeking to
restrain or prohibit the purchase and sale of the Ciba Biocine Business, or
seeking to obtain from the Company any damages that are material in relation to
the Company and its subsidiaries taken as whole, (ii) seeking to prohibit or
limit the ownership or operation by the Company or any of its respective
subsidiaries of a material portion of the business or assets of the Company and
its subsidiaries, taken as a whole, or to compel the Company or Ciba to dispose
of or hold separate any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, as a result of the Offer or any
of the other transactions contemplated by this Agreement or the Ancillary
Agreements or (iii) seeking to prohibit the Company from effectively exercising
any of its material rights under this Agreement or any Ancillary Agreement.
(d) No statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order enacted,
entered, promulgated, enforced or issued by any Governmental Entity or other
legal restraint or prohibition preventing the consummation of any of the
transactions contemplated hereby or by the Ancillary Agreements or having any of
the other consequences described in clauses (i), (ii), or (iii) of Section
2.02(c) shall be in effect.
<PAGE>
12
(e) Each of Ciba, CCorp and Holdings shall have executed and
delivered to the Company each Ancillary Agreement to which it is a party. Each
Ancillary Agreement shall be in full force and effect.
(f) The Commissioner of Corporations of the State of California shall
have issued a permit qualifying the offer and sale to Holdings of the New Shares
or such offer and sale shall be exempt from such qualification under the
California Corporate Securities Law of 1968, as amended.
(g) The waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and any foreign antitrust
and competition laws and regulations applicable to the purchase and sale of the
Ciba Biocine Business and the Diagnostics Shares in each case shall have expired
or been terminated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
disclosed by the Company in a letter, dated the date hereof, to Ciba, CCorp and
Holdings setting forth additional exceptions specified therein to the
representations and warranties contained in this Section 3.01, the Company
represents and warrants to Ciba, CCorp and Holdings as follows (PROVIDED that
the Company makes no representation or warranty with respect to the Biocine
Venture, including the Biocine Company, JV Vax and their subsidiaries, except
with respect to the 1992 Biocine Amendment):
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Company
and its Significant Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company and each of its Significant
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) could not
<PAGE>
13
reasonably be expected to have a material adverse effect on the Company. The
Company has made available to Ciba for its review complete and correct copies of
its Certificate of Incorporation and By-laws and the certificates of
incorporation and by-laws or other constitutive documents of its Significant
Subsidiaries, in each case as amended to the date of this Agreement. For
purposes of this Agreement, a "Significant Subsidiary" means any subsidiary of
the Company that constitutes a significant subsidiary within the meaning of Rule
1-02 of Regulation S-X of the SEC.
(b) SUBSIDIARIES AND JOINT VENTURES. Schedule 3.01(b) lists each
subsidiary of the Company. All the outstanding shares of capital stock of each
Significant Subsidiary that is a corporation have been validly issued and are
fully paid and nonassessable. Except as set forth in Schedule 3.01(b), the
entire equity interest in each subsidiary of the Company is owned by the
Company, by another subsidiary of the Company or by the Company and another such
subsidiary, free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens").
Schedule 3.01(b) lists each corporation, partnership, joint venture or other
entity with respect to which the Company or any subsidiary of the Company holds
or has the right to acquire 5% or more of the common stock, partnership or other
equity interests of such corporation, partnership, joint venture or other
entity, other than any such interest held by the Company or one of its
subsidiaries as a cash equivalent, in each case which is material to the Company
(each such corporation, partnership, joint venture or other entity, a "Joint
Venture"), and a list of all agreements relating thereto or to third party
research and development arrangements ("Research and Development Contracts") to
which the Company or any subsidiary of the Company is a party and which (i) are
material to the business or prospects of the Company or (ii) relate to any
project that is material to the Company's currently existing financial
projections (but excluding immaterial Research and Development Contracts)
(collectively, the "Joint Venture Agreements"); and Schedule 3.01(b)
specifically identifies each such Joint Venture Agreement that contains a
"change of control" provision. Each Joint Venture that is more than 40% owned or
controlled by the Company is duly formed and validly existing in the
jurisdiction of its formation except where the failure to be so duly formed and
validly existing could not reasonably be expected to have a material adverse
effect on the Company. The Company and each subsidiary of the
<PAGE>
14
Company is in compliance in all respects with all the terms, conditions and
obligations applicable to it in respect of each Joint Venture Agreement to which
it is a party except where the failure to be in compliance therewith could not
reasonably be expected to have a material adverse effect on the Company, and
each Joint Venture Agreement is in full force and effect except to the extent it
has expired in accordance with its terms. The interests of the Company and its
subsidiaries in each Joint Venture are owned by the Company or the applicable
subsidiary of the Company free and clear of any Liens, other than any Lien
created pursuant to the express terms of any Joint Venture Agreement. The amount
of payments made by Ciba or its subsidiaries under the 1992 Biocine Agreement
as of the date hereof is approximately $30,000,000.
(c) CAPITAL STRUCTURE; NEW SHARES. The authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock and 5,000,000 shares
of preferred stock, par value $0.01 per share. At the close of business on
November 18, 1994, (i) 33,212,864 shares of Common Stock (none of which were
shares of "Restricted Common Stock") and no shares of preferred stock of the
Company were issued and outstanding, (ii) no shares of Common Stock were held by
the Company in its treasury, (iii) 4,932,117 shares of Common Stock were
reserved for issuance pursuant to outstanding stock options to purchase shares
of Common Stock ("Stock Options") and an additional 3,670,739 shares of Common
Stock were available for the grant of Stock Options pursuant to the Company's
1991 Stock Option Plan, (iv) 1,126,783 shares of Common Stock were reserved for
purchase pursuant to outstanding purchase rights granted under the Company's
1988 Employee Stock Purchase Plan and an additional 1,126,783 shares of Common
Stock were reserved for the grant of additional purchase rights thereunder, (v)
2,195,480 shares of Common Stock were reserved for issuance pursuant to the
Company's 1.9% Convertible Subordinated Notes Due 2000, (vi) 810,810 shares of
Common Stock were reserved for issuance pursuant to the 5-1/4% Convertible
Subordinated Debentures Due 2002 of Chiron Corporation, (vii) 592,815 shares of
Common Stock were reserved for issuance upon the exercise of outstanding
warrants, (viii) 332,129 shares of preferred stock were reserved for issuance in
connection with the rights (the "Rights") to purchase shares of Common Stock
issued pursuant to the Rights Agreement dated as of August 25, 1994 (as amended
from time to time, the "Rights Agreement"), between the Company and Continental
Stock Transfer & Trust Company,
<PAGE>
15
as Rights Agent (the "Rights Agent"). The average exercise price of the
outstanding employee Stock Options is approximately $51.05. Except as set forth
above or as otherwise expressly provided herein, at the close of business on
November 20, 1994, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding and except as set
forth on Schedule 3.01(c), there are not any phantom stock or other contractual
rights the value of which is determined in whole or in part by the value of any
capital stock of the Company ("Stock Equivalents"). There are no outstanding
stock appreciation rights ("SARs") with respect to Common Stock that were not
granted in tandem with a related employee Stock Option. The issuance of the New
Shares pursuant to the terms of this Agreement shall have been duly authorized
and validly issued, and no further approval of the stockholders or the directors
of the Company or of any Governmental Entity will be required by the Company for
the issuance and sale of the New Shares as contemplated by this Agreement. When
issued and sold to Holdings, the New Shares will be duly authorized, validly
issued, fully paid and nonassessable. Other than this Agreement and the
Ancillary Agreements, the New Shares are not subject to any voting trust
agreement or other contract, agreement, arrangement, commitment or
understanding, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting or disposition of
the New Shares. All outstanding shares of capital stock of the Company are, and
all shares that may be issued pursuant to the Stock Plans and the other
agreements and instruments listed above will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth in clauses (v) and (vi) above, there are not any
outstanding bonds, debentures, notes or other indebtedness of the Company having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of the Company may vote.
Except as set forth above and in Schedule 3.01(c), and as otherwise expressly
set forth in this Agreement, and except for changes since November 20, 1994
resulting from the exercise of warrants and the conversion of debentures, as of
the date of this Agreement, there are not any securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its Significant Subsidiaries is a party or by
which any of them is bound obligating the Company or any of its Significant
Subsidiaries to issue, deliver or sell or create, or cause
<PAGE>
16
to be issued, delivered or sold or created, additional shares of capital stock
or other voting securities or Stock Equivalents of the Company or of any of its
Significant Subsidiaries or obligating the Company or any of its Significant
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. As of
the date of this Agreement, there are not any outstanding contractual
obligations of the Company or any of its Significant Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Significant Subsidiaries except pursuant to existing employee arrangements.
(d) AUTHORITY; NONCONTRAVENTION. The Company has the requisite
corporate power and authority to enter into this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated by this Agreement and
the Ancillary Agreements. Except as set forth on Schedule 3.01(d), the execution
and delivery by the Company of this Agreement and each Ancillary Agreement by
the Company to which it is a party and the consummation by the Company of the
transactions contemplated by this Agreement and the Ancillary Agreements have
been duly authorized by all necessary corporate action on the part of the
Company. This Agreement and the Ancillary Agreements to which it is a party have
been duly executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. Except as set forth on Schedule 3.01(d), the execution
and delivery of this Agreement and the Ancillary Agreements by the Company did
not, and the consummation of the transactions contemplated by this Agreement and
the Ancillary Agreements and compliance with the provisions of this Agreement
and the Ancillary Agreements without obtaining the consent of any third party
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss by the
Company or any of its Significant Subsidiaries, or Joint Ventures which are the
subject of Joint Venture Agreements ("Material Joint Ventures"), of a material
benefit under, or the creation of any material additional benefit to any third
party under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any of its subsidiaries under, (i) the Certificate of
Incorporation or By-laws of the Company or the comparable charter or
<PAGE>
17
organizational documents of any of its Significant Subsidiaries, (ii) any
research and development venture or arrangement or any other joint venture
(whether or not a Joint Venture) to which the Company or any of its subsidiaries
is a party, (iii) any loan or credit agreement, note, bond, mortgage, indenture
lease or other agreement, instrument, permit or license applicable to the
Company or any of its subsidiaries or their respective properties or assets or
(iv) subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii), (iii)
and (iv), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate could not reasonably be expected to (x) have a
material adverse effect on the Company, (y) materially impair the ability of the
Company to perform its obligations under this Agreement or any Ancillary
Agreement to which it is a party or (z) prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Ancillary Agreements.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or any party to a Material Contract (as
defined in Section 3.01(f)) is required by or with respect to the Company or any
of its Significant Subsidiaries or its subsidiaries that are parties to such a
Material Contract in connection with the execution and delivery of this
Agreement and the Ancillary Agreements or the consummation by the Company of the
transactions contemplated by this Agreement and the Ancillary Agreements, except
for (i) the filing of a premerger notification and report form by the Company
under the HSR Act and any filings required pursuant to foreign antitrust and
competition law statutes and regulations listed on Schedule 2.01, (ii) the
filing with the SEC of (x) a solicitation/recommendation statement on Schedule
14D-9 and (y) such reports under Sections 12 and 13(a) of the Exchange Act as
may be required in connection with this Agreement, the Ancillary Agreements and
the transactions contemplated by this Agreement and the Ancillary Agreements,
(iii) the filing of a notice pursuant to Section 721 of the Defense Production
Act of 1950 (the "Exon-Florio Amendment") and (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
are set forth on Schedule 3.01(d).
<PAGE>
18
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since December 31, 1992 (the "SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its subsidiaries as of the
dates thereof and their consolidated statements of operations, stockholders
equity and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set forth
in the Filed SEC Documents, to the Company's knowledge neither the Company nor
any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by generally
accepted accounting principles to be set forth on a consolidated balance sheet
of the Company and its subsidiaries or in the notes thereto, other than
liabilities and obligations incurred in the ordinary course of business
consistent with prior practice and experience since September 30, 1994.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 3.01(f) or in the SEC Documents filed and publicly available prior to
the date of this Agreement (the Filed SEC Documents"), since December 31, 1993,
the Company has conducted its business only in the ordinary course, and there
has not been (i) any material adverse change in the Company, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of
<PAGE>
19
the Company's capital stock, other than the distribution of the Rights, (iii)
any split, combination or reclassification of any of its capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, other than
the authorization and issuance of the Rights and the authorization of the
issuance of securities upon exercise of the Rights, (iv) any damage, destruction
or loss, whether or not covered by insurance, that has had or could reasonably
be expected to have a material adverse effect on the Company or (v) any change
in accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles. Except as set
forth on Schedule 3.01(f) or in the Filed SEC Documents, since June 30, 1994,
there has not been (i)(x) any granting by the Company or any of its subsidiaries
to any executive officer of the Company or any of its subsidiaries of any
increase in compensation, except in the ordinary course of business consistent
with prior practice or as was required under employment agreements in effect on
December 31, 1993, (y) any granting by the Company or any of its subsidiaries to
any such executive officer of any increase in severance or termination pay,
except as was required under any employment, severance or termination agreements
in effect on December 31, 1993, or (z) any entry by the Company or any of its
subsidiaries into any employment, severance or termination agreement with any
such executive officer, or (ii) any other action that would require the approval
of Ciba or a majority of the Investor Directors under any Ancillary Agreement
after the Closing.
(g) LITIGATION. Except as disclosed in the Filed SEC Documents or as
set forth on Schedule 3.01(g), there is no suit, action or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any of
its subsidiaries that, individually or in the aggregate, could reasonably be
expected to (i) have a material adverse effect on the Company, (ii) materially
impair the ability of the Company to perform its obligations under this
Agreement or any Ancillary Agreement or (iii) prevent the consummation of any of
the transactions contemplated by this Agreement or any Ancillary Agreement, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against the Company or any of its subsidiaries
having, or that could reasonably be expected to have, any such effect.
<PAGE>
20
(h) ABSENCE OF CHANGES IN BENEFIT PLANS. Except as set forth on
Schedule 3.01(h) or disclosed in the Filed SEC Documents, since June 30, 1994,
there has not been any adoption or amendment by the Company or any of its
subsidiaries of any collective bargaining agreement or any bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan, providing
benefits to any current or former employee, officer or director of the Company,
any of its subsidiaries or any other person or entity that, together with the
Company, is treated as a single employer under Section 414(b), (c), (m) or (o)
of the Internal Revenue Code of 1986, as amended (the "Code") (each a "Commonly
Controlled Entity") (collectively, "Benefit Plans"), that could reasonably be
expected to have a material adverse effect on the Company. Except as set forth
on Schedule 3.01(h) or disclosed in the Filed SEC Documents, there exist no
employment, consulting, severance, termination or indemnification agreements
between the Company or any of its subsidiaries and any current or former
employee, officer or director of the Company or any of its subsidiaries which
are material to the Company.
(i) TAXES. The Company and each of its subsidiaries has timely filed
all tax returns and reports required to be filed by them either on a separate or
combined or consolidated basis except where failure to timely file could not
reasonably be expected to have a material adverse effect on the Company. All
such returns are complete and accurate except where the failure to be complete
or accurate could not reasonably be expected to have a material adverse effect
on the Company. Each of the Company and its subsidiaries has paid or caused to
be paid all taxes shown as due on such returns and all material taxes for which
no return was filed except where the failure to do so could not reasonably be
expected to have a material adverse effect on the Company. No deficiencies for
any taxes have been asserted, proposed or assessed against the Company or any of
its subsidiaries that have not been paid or otherwise settled except for
deficiencies the assertion, proposing or assessment of which could not
reasonably be expected to have a material adverse effect on the Company, and no
requests for waivers of the time to assess any such taxes are pending. The
Federal income tax returns of the Company and each of its subsidiaries
consolidated in such returns have been examined by and settled with the United
<PAGE>
21
States Internal Revenue Service or are closed under the statute of limitations
for all years through 1986 (except for Cetus Oncology Corporation, whose returns
are closed through 1985). The Company has made available to Ciba for its review
the Federal and California income tax returns of the Company and each of its
subsidiaries consolidated in such returns in each case that are open under the
applicable statute of limitations. As used in this Agreement, "taxes" shall
include all Federal, state, local and foreign income, property, sales, excise,
withholding and other taxes, tariffs or governmental charges of any nature
whatsoever.
(j) NO EXCESS PARACHUTE PAYMENTS. Except as disclosed in Schedule
3.01(j), no amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement or any of the Ancillary Agreements by any employee, officer or
director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in proposed Treasury Regulation Section
1.28OG-1) under any employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect would be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
(k) VOTING REQUIREMENTS. No vote of the holders of any class or
series of the Company's capital stock is necessary to approve this Agreement,
the Ancillary Agreements or the transactions contemplated by this Agreement and
the Ancillary Agreements. This Agreement and the Ancillary Agreements and the
transactions contemplated by this Agreement and the Ancillary Agreements have
been approved by a two-thirds vote of the "Continuing Directors" (as defined in
Article ELEVENTH of the Company's Certificate of Incorporation).
(l) RIGHTS AGREEMENT; 1988 AGREEMENT. The Company has taken all
necessary action, subject to ministerial action by the Rights Agent, to (i)
render the Rights inapplicable to the transactions contemplated by this
Agreement and the Ancillary Agreements and (ii) amend the Rights Agreement such
that (y) neither Ciba nor any of its affiliates is or will be an "Acquiring
Person" (as defined in the Rights Agreement) as a result of the transactions
contemplated by this Agreement and the Ancillary Agreements and (z) a
"Distribution Date" (as defined in the Rights Agreement) does not and shall not
occur by reason of the
<PAGE>
22
announcement or consummation of any transaction contemplated by this Agreement
or any Ancillary Agreement. The Company has hereby effectively waived the
provisions of Section 9 of the Stock Purchase Agreement dated as of November 14,
1988 between the Company and Ciba (the "1988 Agreement") to the extent necessary
to permit the purchase by Holdings of shares of Common Stock pursuant to the
Offer and the consummation of the Share Issuances and the other transactions
contemplated hereby and by the Ancillary Agreements. The 1988 Agreement, except
for Section 10.01 thereof, will terminate as of the Closing Date.
(m) BROKERS. No broker, investment banker, financial advisor or other
person, other than Morgan Stanley & Co. and Robertson, Stephens & Co., the fees
and expenses of each of which will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements based upon arrangements made by or on behalf of the
Company. A complete and correct copy of each of the Company's engagement letters
with Morgan Stanley & Co. and Robertson, Stephens & Co. has been made available
by the Company to Ciba for its review prior to the execution of this Agreement.
(n) COMPLIANCE WITH LAWS. (i) The Company and each of its
subsidiaries has in effect all Federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights ("Permits") necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, and there
has not occurred any default under any Permit, except for absence of Permits and
for defaults under Permits which absence or defaults that, individually or in
the aggregate, have not had and could not reasonably be expected to have a
material adverse effect on the Company. Except as disclosed in the Filed SEC
Documents, the Company and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, regulations, rules, judgments, decrees or
orders of any Governmental Entity except where failures to so comply,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the Company. Except as disclosed in the Filed SEC
Documents, neither the United States Food and Drug Administration (the "FDA")
nor any corresponding foreign Governmental Entity has alleged that the Company
or any of its subsidiaries is in violation
<PAGE>
23
of or, to the best knowledge of the Company, threatened to withdraw or revoke,
any Permit granted by it to the Company or any of its subsidiaries except for
violations, withdrawals or revocations that, individually or in the aggregate,
could not reasonably be expected to have a material adverse effect on the
Company, nor is the FDA or any corresponding foreign Governmental Entity
currently investigating or, to the best knowledge of the Company, planning to
investigate any alleged violation of any such Permit, any of which
investigations, individually or in the aggregate, could reasonably be expected
to have a material adverse effect on the Company, nor has the FDA or any
corresponding foreign Governmental Entity requested that the Company or any of
its subsidiaries cease to investigate, test or market any product for which the
Company or such subsidiary has a Permit from the FDA or such corresponding
foreign Governmental Entity to investigate, test or market, as the case may be,
except for cessations that, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the Company.
(ii) Except as set forth in Schedule 3.01(n), (A) neither the
Company nor any of its subsidiaries has received any written communication
from a Governmental Entity that alleges that the Company or any subsidiary is
not in compliance with any Environmental Law (as defined below) if such
non-compliance could reasonably be expected to have a material adverse effect
on the Company and (B) the Company has no knowledge of any environmental
materials or information, other than as listed in the Schedule 3.01(n),
including on-site or off-site disposal or releases of Hazardous Materials (as
defined below), that could reasonably be expected to have a material adverse
effect on the Company. The Company has provided Ciba with access to all
material records and reports of the Company related to any actual or
potential material liability of the Company under Environmental Laws. As
used in this Agreement, the term "Environmental Laws" means any applicable
treaties, laws, regulations, enforceable requirements, orders, decrees or
judgments issued, promulgated or entered into by any Governmental Entity,
which relate to (A) pollution or protection of the environment or (B) the
generation, storage, use, handling, disposal or transportation of or exposure
to Hazardous Materials, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601,
ET SEQ. ("CERCLA"), the Resource Conservation and Recovery Act, as amended,
42 U.S.C. Sections 6901 ET SEQ., the Federal Water Pollution Control
<PAGE>
24
Act, as amended, 33 U.S.C. Sections 1251 ET SEQ., the Clean Air Act of 1970,
as amended, 42 U.S.C. Sections 7401 ET SEQ., the Toxic Substances Control Act
of 1976, 15 U.S.C. Sections 2601 ET SEQ., the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 ET SEQ., and any similar or
implementing state or local law, and all amendments or regulations
promulgated thereunder. As used in this Agreement, the term "Hazardous
Materials" means all explosive or regulated radioactive materials or
substances, biological hazards, genotoxic or mutagenic hazards, hazardous or
toxic substances, medical wastes or other wastes or chemicals, petroleum or
petroleum distillates, asbestos or asbestos-containing materials, and all
other materials or chemicals regulated pursuant to any Environmental Law,
including materials listed in 49 C.F.R. Section 172.101 and materials defined
as hazardous pursuant to Section 101(14) of CERCLA.
(o) INTELLECTUAL PROPERTY. (i) The Company has made available to Ciba
a list of all material patents and applications therefor and licenses to use, in
each case that are owned or used by the Company or any subsidiary thereof and
are material to the business, condition (financial or otherwise), results of
operations or prospects of the Company and each of its subsidiaries, taken as a
whole (collectively, the "Intellectual Property Rights"). To the best knowledge
of the Company, except as disclosed in the SEC Documents or Schedule 3.01(o), no
Intellectual Property Right (I) has been declared invalid, in whole or in part,
or abandoned, dedicated, disclaimed or allowed to lapse for nonpayment of fees
or taxes or for any other reason or (II) is being infringed by any third party,
in each case if the result thereof could reasonably be expected to have a
material adverse effect on the Company.
(ii) To the best knowledge of the Company, except as disclosed in the
SEC Documents or in Schedule 3.01(o), (A) neither the Company nor any of its
subsidiaries during the five years preceding the date of this Agreement has been
sued or charged in writing with respect to, or been a defendant in, any claim,
suit, action or proceeding including a claim of infringement by the Company or
such subsidiary of any intellectual property rights which, if successful, could
reasonably be expected to have a material adverse effect on the Company and (B)
to the best knowledge of the Company, the conduct by the Company and its
subsidiaries of their respective businesses does not infringe the valid
intellectual property rights of any other
<PAGE>
25
person in any way that could reasonably be expected to have a material adverse
effect on the Company.
(p) MATERIAL CONTRACTS. All contracts, leases and other agreements to
which the Company or any of its subsidiaries is a party that would be required
to be filed as Exhibits to the SEC Documents (the "Material Contracts") have
been filed as Exhibits to the SEC Documents. Except as disclosed in Schedule
3.01(p), (i) each Material Contract is in full force and effect except as the
same may have expired in accordance with its terms; (ii) the Company and its
subsidiaries have performed all the obligations required to be performed thereby
under each Material Contract; (iii) neither the Company nor any of its
subsidiaries has received any written assertion of default under any Material
Contract; (iv) neither the Company nor any of its subsidiaries expects or has
received any notice related to any termination or material change to, or
proposal with respect to, any of the Material Contracts as a result of the
transactions contemplated by this Agreement and the Ancillary Agreements
(including, without limitation, the exercise of any right to purchase the assets
of or otherwise alter any Joint Venture or terminate any Joint Venture
Agreement); and (v) neither the Company nor any of its subsidiaries has
knowledge of any material breach or anticipated material breach by any other
party to any Material Contract; in each case except where the result of a
failure of a representation contained in clauses (i), (ii), (iii), (iv) or (v)
above could not reasonably be expected to have a material adverse effect on the
Company. The Company has filed as an exhibit to an SEC Document or has made
available to Ciba for its review true, complete and unredacted copies of each
Material Contract and each Joint Venture Agreement, together with all
amendments, waivers or other changes thereto.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF CIBA, CCORP AND
HOLDINGS. Ciba, CCorp and Holdings represent and warrant to the Company as
follows:
(a) AUTHORITY; NONCONTRAVENTION. Each of Ciba, CCorp, Holdings and
JV Holdings is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated. Each
of Ciba, CCorp and Holdings has all requisite corporate power and authority
to enter into this Agreement and the Ancillary Agreements to which it is a
party and to consummate the transactions contemplated by this Agreement
<PAGE>
26
and the Ancillary Agreements. The execution and delivery by each of Ciba, CCorp
and Holdings of this Agreement and the Ancillary Agreements to which it is a
party and the consummation of the transactions contemplated by this Agreement
and the Ancillary Agreements have been duly authorized by all necessary
corporate action on the part of each of Ciba, CCorp and Holdings, as applicable,
except, in the case of CCorp, any required Board of Directors resolutions
ratifying any such actions by CCorp will be adopted within three business days
after the date hereof. This Agreement and the Ancillary Agreements have been
duly executed and delivered by each of Ciba, CCorp and Holdings, as applicable,
and constitute valid and binding obligations of such party, enforceable against
such party in accordance with their respective terms subject, in the case of
CCorp, to such notification. The execution and delivery by each of Ciba, CCorp
and Holdings of this Agreement and the Ancillary Agreements to which it is a
party did not, and the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements and compliance with the provisions of
this Agreement and the Ancillary Agreements to which it is a party without
obtaining the consent of any third party will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss by Ciba or any of its subsidiaries of a material
benefit under, or the creation of any material additional benefit to any third
party under, or result in the creation of any Lien upon any of the properties or
assets of Ciba or any of its Significant Subsidiaries under, (i) the certificate
of incorporation or by-laws of Ciba, CCorp or Holdings, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit or license applicable to Ciba or its subsidiaries or their
respective properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Ciba, CCorp or
Holdings or their respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, defaults, rights or
Liens that individually or in the aggregate could not reasonably be expected to
impair the ability of Ciba, CCorp and Holdings to perform their respective
obligations under this Agreement and the Ancillary Agreements or (z) prevent the
consummation of any of the transactions contemplated by this Agreement and the
<PAGE>
27
Ancillary Agreements. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any
other third party is required by or with respect to Ciba, CCorp or Holdings
in connection with the execution and delivery of this Agreement and the
Ancillary Agreements or the consummation by Ciba, CCorp or Holdings, as the
case may be, of any transaction contemplated by this Agreement or any
Ancillary Agreement, except for (i) the filing of a premerger notification
and report form under the HSR Act and any filings required pursuant to the
foreign antitrust and competition law statutes and regulations, (ii) the
filing with the SEC of the Offer Documents, and such statements and reports
under Sections 12, 13 and 16(a) of the Exchange Act as may be required in
connection with this Agreement, the Ancillary Agreements and the transactions
contemplated by this Agreement and the Ancillary Agreements, (iii) the filing
of a notice pursuant to the Exon-Florio Amendment and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the "takeover" or "blue sky" laws of various
states.
(b) BROKERS. No broker, investment banker, financial advisor or other
person, other than CS First Boston Corporation, the fees and expenses of which
will be paid by Ciba, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements based upon
arrangements made by or on behalf of Ciba, CCorp or Holdings.
(c) OWNERSHIP OF COMMON STOCK. Ciba is the beneficial owner of
1,367,372 shares of Common Stock as measured for purposes of Schedule 13D under
the Exchange Act. Except for such ownership, as of the date of this Agreement,
Ciba does not beneficially own shares of Common Stock.
(d) INVESTMENT INTENT. Holdings is purchasing or acquiring the New
Shares for its own account for investment and not with a present view to, or for
sale in connection with, any distribution thereof in violation of the Securities
Act. The certificates evidencing the New Shares and any other shares issued
pursuant to the Share Issuances (together, with the New Shares, the "Holdings
Shares") shall bear substantially the following legend under a sale or
<PAGE>
28
transfer in accordance with this Agreement and the Ancillary Agreements or the
termination thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THE TRANSFER OF SUCH SHARES IS SUBJECT TO THE
CONDITIONS SPECIFIED IN THE INVESTMENT AGREEMENT DATED AS OF NOVEMBER
20, 1994, AMONG THE COMPANY, CIBA-GEIGY LIMITED, CIBA-GEIGY CORPORATION
AND CIBA BIOTECH PARTNERSHIP, INC. AND THE GOVERNANCE AGREEMENT DATED AS
OF NOVEMBER 20, 1994, AMONG THE COMPANY, CIBA-GEIGY LIMITED AND
CIBA-GEIGY CORPORATION, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE
TRANSFER OF SUCH SHARES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS WILL BE FURNISHED BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED EXCEPT IN ACCORDANCE THEREWITH."
(e) ACQUISITION FOR INVESTMENT AND RULE 144. Holdings understands
that the Holdings Shares will not be registered under the Securities Act by
reason of a specific exemption from the registration provision of the Securities
Act which depends upon, among other things, the bona fide nature of Holdings'
investment intent as expressed herein. Holdings acknowledges that the Holdings
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. Holdings
has been advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions. Holdings is aware
that the certificates representing the Holdings Shares will bear such legends
relating to restrictions on resale under the Securities Act as provided in
Section 3.01(e) and the Company under certain conditions may issue stop transfer
instructions to its stock transfer agent with respect to the Holdings Shares.
(f) LEGAL INVESTMENT. The purchase of the New Shares by Holdings
hereunder is legally permitted by all laws and regulations to which Holdings is
subject and all consents, approvals, authorizations of or designations,
declarations or filings in connection with the valid
<PAGE>
29
execution and delivery of this Agreement by Holdings or the purchase of the New
Shares by Holdings have been obtained, or will be obtained prior to the Closing
Date.
(g) PURCHASE ENTIRELY FOR OWN ACCOUNT. The New Shares will be
acquired for investment for Holdings' own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and
Holdings has no present intention of selling, granting any participation in, or
otherwise distributing the same. Holdings does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the New Shares.
SECTION 3.03. REPRESENTATIONS AND WARRANTIES OF CIBA RELATING TO
DIAGNOSTICS. Ciba represents and warrants to the Company as follows:
(a) ORGANIZATION AND STANDING. Each of Ciba Corning Diagnostics
Corp. ("Diagnostics") and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority to
carry on its business an now being conducted. Diagnostics and each of the
Diagnostics Significant Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
material adverse effect on Diagnostics. Ciba has made available to the Company
for its review complete and correct copies of the Certificate of Incorporation
and By-laws of Diagnostics and the certificates of incorporation and bylaws or
other constitutive documents of the Diagnostics Significant Subsidiaries, in
each case as amended to the date of this Agreement. For purposes of this
Agreement, a "Diagnostics Significant Subsidiary" means any subsidiary of
Diagnostics that constitutes a significant subsidiary within the meaning of Rule
1-02 of Regulation S-X of the SEC.
(b) SUBSIDIARIES AND JOINT VENTURES. Schedule 3.03(b) lists each
subsidiary of Diagnostics. All the outstanding shares of capital stock of each
Diagnostics Significant Subsidiary that is a corporation have been
<PAGE>
30
validly issued and are fully paid and nonassessable. Except as set forth in
Schedule 3.03(b) and except for directors' qualifying shares, the entire equity
interest in each subsidiary of Diagnostics is owned by Diagnostics, by another
subsidiary of Diagnostics or by Diagnostics and another such subsidiary, free
and clear of all Liens. Schedule 3.03(b) lists each corporation, partnership,
joint venture or other entity with respect to which Diagnostics or any
subsidiary of Diagnostics holds or has the right to acquire 5% or more of the
common stock, partnership or other equity interests of such corporation,
partnership, joint venture or other entity, other than any such interest held by
Diagnostics or one of its subsidiaries as a cash equivalent, in each case which
is material to Diagnostics (each such corporation, partnership, joint venture or
other entity, a "Diagnostics Joint Venture"), and a list of all agreements
relating thereto and to third party research and development arrangements to
which Diagnostics or any subsidiary of Diagnostics is a party and which (i) are
material to the business or prospects of Diagnostics or (ii) relate to any
project that is material to Diagnostic's currently existing financial
projections (collectively, the "Diagnostics Joint Venture Agreements"); and
Schedule 3.03(b) specifically identifies each such Diagnostics Joint Venture
that contains a "change of control" provision. Each Diagnostics Joint Venture
that is more than 40% owned or controlled by Diagnostics is duly formed and
validly existing in the jurisdiction of its formation except where the failure
to be so duly formed and validly existing could not reasonably be expected to
have a material adverse effect on Diagnostics. Diagnostics and each subsidiary
of Diagnostics is in material compliance with each Diagnostics Joint Venture
Agreement that is material to the business of Diagnostics to which it is a
party, and each Diagnostics Joint Venture Agreement is in full force and effect.
Except as set forth in Schedule 3.03(b), the interests of Diagnostics and its
subsidiaries in each Diagnostics Joint Venture are owned by Diagnostics or the
applicable subsidiary of Diagnostics free and clear of any Liens, other than any
Lien created pursuant to the express terms of any Diagnostics Joint Venture
Agreement.
(c) DIAGNOSTICS SHARES. The authorized capital stock of
Diagnostics consists of 10,000 shares of Common Stock, par value $10 per share,
all of which shares are issued and outstanding (the "Diagnostics Shares"). All
of the Diagnostics Shares are beneficially owned by Ciba and CCorp, free and
clear of any Liens. Except for the
<PAGE>
31
Diagnostics Shares, no shares of capital stock or other voting securities of
Diagnostics were issued, reserved for issuance or outstanding and except as set
forth on Schedule 3.03(c), there are not any phantom stock or other contractual
rights the value of which is determined in whole or in part by the value of any
capital stock of Diagnostics ("Diagnostics Stock Equivalents"). When sold to the
Company, the Diagnostics Shares will be duly authorized, validly issued, fully
paid and non-assessable by Ciba, CCorp or a subsidiary thereof. The Diagnostics
Shares are not subject to any voting trust agreement or other contract,
agreement, arrangement, commitment or understanding, including any such
agreement, arrangement, commitment or understanding restricting or otherwise
relating to the voting, dividing or distribution of the Diagnostics Shares.
There are no outstanding bonds, debentures, notes or other indebtedness of
Diagnostics having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of
Diagnostics may vote. Except as set forth above, as of the date of this
Agreement, there are not any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Diagnostics is a party or by which Diagnostics is bound obligating Diagnostics
to issue, deliver or sell or create, or cause to be issued, delivered or sold or
created, additional shares of capital stock or other voting securities or
Diagnostics Stock Equivalents or obligating Diagnostics or any of its
subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
(d) FINANCIAL STATEMENTS. The audited balance sheet (the
"Diagnostics Balance Sheet") of Diagnostics at January 2, 1994, which is
attached as Annex A-1 hereto, including the notes thereto and information
relating thereto set forth in such Annex A-1, and the unaudited balance sheet of
Diagnostics at July 3, 1994, which is attached as Annex A-1A hereto, including
the notes thereto and information relating thereto set forth in such Annex A-1A,
in each case (i) was prepared substantially as described in Annex A-3 hereto and
(ii) fairly presents in all material respects the financial condition of
Diagnostics as of such date, in accordance with United States generally accepted
accounting principles except as otherwise described in Annex A-3. The audited
income statement of Diagnostics for the one-year period ended January 2, 1994,
which is attached
<PAGE>
32
as Annex A-2 hereto, including the notes thereto and information relating
thereto set forth in such Annex A-2, and the unaudited income statement of
Diagnostics for the six-month period ended July 3, 1994, which is attached as
Annex A-2A hereto, including the notes thereto and information relating thereto
set forth in such Annex A-2A, in each case (i) was prepared substantially as
described in Annex A-3 hereto and (ii) fairly presents in all material respects
the results of operations of Diagnostics for such period, in accordance with
United States generally accepted accounting principles except as otherwise
described in Annex A-3.
(e) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 3.03(e), since June 30, 1994, Diagnostics has conducted its business
only in the ordinary course, and there has not been (i) any material adverse
change in Diagnostics, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) or any
change in stockholder's equity with respect to any of Diagnostics' capital
stock, (iii) (x) any granting by Diagnostics or any of its subsidiaries to any
executive officer of Diagnostics or any of its subsidiaries of any increase in
compensation, except in the ordinary course of business consistent with prior
practice or as was required under employment agreements in effect on June 30,
1994, (y) any granting by Diagnostics or any of its subsidiaries to any such
executive officer of any increase in severance or termination pay, except as was
required under any employment, severance or termination agreements in effect on
June 30, 1994, or (z) any entry by Diagnostics or any of its subsidiaries into
any employment, severance or termination agreement with any such executive
officer, (iv) any damage, destruction or loss, whether or not covered by
insurance, that has had or could reasonably be expected to have a material
adverse effect on Diagnostics or (v) any change in accounting methods,
principles or practices by Diagnostics materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
generally accepted accounting principles.
(f) LITIGATION. Except as disclosed in Schedule 3.03(f), there is
no suit, action or proceeding pending or, to the knowledge of Ciba or CCorp,
threatened against Diagnostics that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on Diagnostics, nor is
there any judgment, decree,
<PAGE>
33
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Ciba or any of its subsidiaries related to Diagnostics and having or
that could reasonably be expected to have any such effect.
(g) ABSENCE OF CHANGES IN BENEFIT PLANS. Except as disclosed on
Schedule 3.03(g), since June 30, 1994, there has not been any adoption or
amendment in any material respect by Diagnostics or any of its subsidiaries
of any collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, severance, disability or
death benefit plan providing benefits to any current or former employee,
officer or director of Diagnostics, any of its subsidiaries or any other
person or entity that, together with Diagnostics, is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code (each a
"Diagnostics Commonly Controlled Entity") (collectively, "Diagnostics Benefit
Plans") which adoption or amendment is material to the business of
Diagnostics. Except as disclosed on such Schedule 3.03(g), there exist no
employment, consulting, severance, termination or indemnification agreements
between Diagnostics or any of its subsidiaries and any current or former
officer or director of Diagnostics or any of its subsidiaries which are
material to Diagnostics.
(h) ERISA COMPLIANCE. (i) Schedule 3.03(h) contains a list and
brief description of all Pension Plans, "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA) and all other Diagnostics Benefit Plans, other
than plans maintained outside the United States, that are maintained, or
contributed to, by Diagnostics, any of its subsidiaries or any Diagnostics
Commonly Controlled Entity for the benefit of any current or former employees,
officers or directors of Diagnostics or any of its subsidiaries. Ciba has made
available to the Company for its review true, complete and correct copies of (A)
each Diagnostics Benefit Plan (or, in the case of any unwritten Diagnostics
Benefit Plans, descriptions thereof), (B) the most recent annual report on Form
5500 filed with the Internal Revenue Service with respect to each Diagnostics
Benefit Plan (if any such report was required), (C) the most recent summary plan
description for each Diagnostics Benefit Plan for which such summary plan
description is required and (D) each trust agreement and group annuity contract
relating to any Diagnostics Benefit Plan.
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34
(ii) Each Diagnostics Benefit Plan has been administered in all
material respects in accordance with its terms. Diagnostics, its subsidiaries
and all the Diagnostics Benefit Plans are in compliance in all material respects
with the applicable provision of ERISA and the Code. Except as disclosed in
Schedule 3.03(h), all reports, returns and similar documents with respect to the
Diagnostics Benefit Plans required to be filed with any governmental agency or
distributed to any Diagnostics Benefit Plan participant have been duly and
timely filed or distributed. Except as disclosed in Schedule 3.03(h), there are
no investigations by any governmental agency, termination proceedings or other
claims (except claims for benefits payable in the normal operation of the
Diagnostics Benefit Plans), suits or proceedings against or involving any
Diagnostics Benefit Plan or asserting any rights or claims to benefits under any
Diagnostics Benefit Plan that could give rise to any material liability, and
there are not any facts that could give rise to any material liability in the
event of any such investigation, claim, suit or proceeding.
(iii) Except as disclosed in Schedule 3.03(h), (1) all contributions
to, and payments from, the Diagnostics Benefit Plans that may have been required
to be made in accordance with the terms of the Diagnostics Benefit Plans, any
applicable collective bargaining agreement and, when applicable, Section 302 of
ERISA or Section 412 of the Code, have been timely made, (2) there has been no
application for or waiver of the minimum funding standards imposed by Section
412 of the Code with respect to any Benefit Plan that is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) (each, a "Diagnostics
Pension Plan") and (3) no Diagnostics Pension Plan had an "accumulated funding
deficiency" within the meaning of Section 412(a) of the Code as of the end of
the most recently completed plan year.
(iv) Except as disclosed in Schedule 3.03(h), all Pension Plans of
Diagnostics have been the subject of determination letters from the Internal
Revenue Service to the effect that such Pension Plans are qualified and exempt
from Federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, and no such determination letter has been revoked nor, to the knowledge of
Ciba or CCorp, has revocation been threatened, nor has any such Pension Plan
been amended since the date of its most recent determination letter or
application therefor in any respect that would
<PAGE>
35
adversely affect its qualification or materially increase its costs or require
security under Section 307 of ERISA. Ciba has made available to the Company for
its review a copy of the most recent determination letter received with respect
to Diagnostics Pension Plan for which such a letter has been issued, as well as
a copy of any pending application for a determination letter. Ciba has also
provided to the Company a list of all Diagnostics Pension Plan amendments as to
which a favorable determination letter has not yet been received. No event has
occurred that could subject any Diagnostics Pension Plan to tax under
Section 511 of the Code.
(v) Except as disclosed on Schedule 3.03(h), no Pension Plan that
Diagnostics or any of its subsidiaries maintains, or to which Diagnostics or any
of its subsidiaries is obligated to contribute, other than any Pension Plan that
is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of
ERISA; collectively, the "Diagnostics Multiemployer Pension Plans"), had, as of
the respective last annual valuation date for each such Pension Plan, an
"unfunded benefit liability" (as such term is defined in Section 4001(a)(18) of
ERISA), based on actuarial assumptions that have been furnished to the Company
by Ciba and neither Ciba nor CCorp is aware of any facts or circumstances that
would materially change the funded status of any such Pension Plan. Ciba has
furnished to the Company the most recent actuarial report or valuation with
respect to each Diagnostics Pension Plan. The information supplied to the
actuary by the Ciba and any subsidiary thereof for use in preparing those
reports or valuations was complete and accurate in all material respects and
neither Ciba nor CCorp has any reason to believe that the conclusions expressed
in those reports or valuations are incorrect. None of such Pension Plans has an
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived. None of Diagnostics,
any of its subsidiaries, any officer of Diagnostics or any of its subsidiaries
or any of the Diagnostics Benefit Plans that is subject to ERISA, including any
Pension Plan, any trusts created thereunder or any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as such term is defined in
Section 406 of ERISA or Section 4975 of the Code) or any other breach of
fiduciary responsibility that could subject Diagnostics, any of its subsidiaries
or any officer of Diagnostics or any of its subsidiaries to any tax or penalty
under ERISA, the Code or any other applicable law. Neither
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36
any of such Diagnostics Benefit Plans nor any of such trusts has been
terminated, nor has there been any "reportable event" (as that term is defined
in Section 4043 of ERISA) with respect to any of the Diagnostics Benefit Plans
during the last five years.
(vi) Except as disclosed in Schedule 3.03(h), no Diagnostics
Commonly Controlled Entity has incurred any liability to a Pension Plan (other
than for contributions not yet due) or to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums not yet due) that, when
aggregated with other such liabilities, would result in a material liability to
Diagnostics, which liability has not been fully paid as of the date hereof.
(vii) Except as disclosed in Schedule 3.03(h), no Diagnostics
Commonly Controlled Entity has (a) engaged in a transaction described in Section
4069 of ERISA that could subject Diagnostics to liability at any time after the
date hereof or (b) acted in a manner that could, or failed to act so as to,
result in fines, penalties, taxes or related charges under (x) Section 502(c)(i)
or (l) of ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Code.
(viii) Neither Diagnostics nor any subsidiary of Diagnostics
maintains or is obligated to contribute to any Multiemployer Plan.
(ix) With respect to any Diagnostics Benefit Plan that is an
employee welfare benefit plan, except as disclosed in Schedule 3.03(h), (A) no
such Diagnostics Benefit Plan is unfunded or funded through a "welfare benefits
fund", as such term is defined in Section 419(e) of the Code, (B) each such
Diagnostics Benefit Plan that is a "group health plan", as such term is defined
in Section 5000(b)(1) of the Code, complies with the applicable requirements of
Section 498OB(f) of the Code and (c) each such Diagnostics Benefit Plan
(including any such Plan covering retirees or other former employees) may be
amended or terminated without material liability to Diagnostics or any of its
subsidiaries on or at any time after the Closing.
(i) TAXES. Diagnostics and each of its subsidiaries has timely
filed all tax returns and reports required to be filed by them except where
failure to timely file would not result in additional material tax liability to
Diagnostics. All such returns are complete and accurate except with respect to
omissions or inaccuracies the value
<PAGE>
37
of which are not material to the business of Diagnostics. Each of Diagnostics
and its subsidiaries has paid or caused to be paid all taxes shown as due on
such returns and all taxes in each case the amount of which is material to the
business of Diagnostics for which no return was filed. No deficiencies for any
taxes have been asserted, proposed or assessed against Diagnostics or any of its
subsidiaries that have not been paid or otherwise settled, and no requests for
waivers of the time to assess any such taxes are pending. The Federal income tax
returns of Diagnostics and each of its subsidiaries consolidated in such returns
have been examined by and settled with the United States Internal Revenue
Service or are closed under the statute of limitations for all years through
1990. Diagnostics has not been included in any Federal or state consolidated tax
return of another entity.
(j) NO EXCESS PARACHUTE PAYMENTS. No amount that could be
received (whether in cash or property or the vesting of property) as a result
of any of the transactions contemplated by this Agreement or any of the
Ancillary Agreements by any employee, officer or director of Diagnostics or
any of its affiliates who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation
arrangement or Diagnostics Benefit Plan currently in effect would be
characterized as an "excess parachute payment" (as such term is defined in
Section 28OG(b)(1) of the Code).
(k) INTELLECTUAL PROPERTY. (i) Ciba has made available to the
Company a list of all material patents and applications therefor and licenses to
use, in each case that are owned or used by Diagnostics and are material to the
business, condition (financial or otherwise), results of operations or prospects
of Diagnostics, taken as a whole (collectively, the "Diagnostics Intellectual
Property Rights"). To the best knowledge of Ciba, except as disclosed in
Schedule 3.03(k), no Diagnostics Intellectual Property Right (A) has been
declared invalid, in whole or in part, or abandoned, dedicated, disclaimed or
allowed to lapse for nonpayment of fees or taxes or for any other reason or (B)
is being infringed by any third party, in each case which could reasonably be
expected to have a material adverse effect on Diagnostics.
(ii) To the best knowledge of Ciba, except as disclosed in Schedule
3.03(f) or 3.03(k), (A) neither
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38
Diagnostics nor any of its subsidiaries during the five years preceding the date
of this Agreement has been sued or charged in writing with respect to, or been a
defendant in, any claim, suit, action or proceeding including a claim of
infringement by Diagnostics or such subsidiary of any intellectual property
rights which, if successful, could reasonably be expected to have a material
adverse effect on Diagnostics and (B) to the best knowledge of Ciba and CCorp,
the conduct by Diagnostics and its subsidiaries of their respective businesses
does not infringe the valid intellectual property rights of any other person in
any way that could reasonably be expected to have a material adverse effect on
Diagnostics.
(l) MATERIAL CONTRACTS. Schedule 3.03(l) lists all contracts,
leases and other agreements to which Diagnostics or any of its subsidiaries
is a party that are material to the business, properties, assets, condition
(financial or otherwise), results of operations or prospects of Diagnostics
and its subsidiaries, taken as a whole (the "Diagnostics Material
Contracts"). Except as disclosed in Schedule 3.03(l), Schedule 3.03(f) or
Schedule 3.03(k), (i) each Diagnostics Material Contract is in force and in
effect except for Material Contracts that have expired in accordance with
their terms; (ii) Diagnostics and its subsidiaries have performed all
material obligations required to be performed thereby under each Diagnostics
Material Contract; (iii) neither Ciba nor any of its subsidiaries has
received any written assertion of default under any Diagnostics Material
Contract; (iv) neither Ciba nor any of its subsidiaries expects or has
received any notice related to any termination or material change to, or
proposal with respect to, any of the Diagnostics Material Contracts as a
result of the transactions contemplated by this Agreement and the Ancillary
Agreements; and (v) neither Ciba nor any of its subsidiaries has knowledge of
any material breach or anticipated material breach by any other party to any
Diagnostics Material Contract. Ciba has made available to the Company for its
review true and complete copies of each Diagnostics Material Contract and
each Diagnostics Joint Venture Agreement, together with all amendments,
waivers or other changes thereto.
(m) COMPLIANCE WITH LAWS. (i) Diagnostics and each of its
subsidiaries has in effect all Permits necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, and
there has not occurred any default under any Permit, except for
<PAGE>
39
absence of Permits and for defaults under Permits which absence or defaults
that, individually or in the aggregate, have not had and could not reasonably be
expected to have a material adverse effect on Diagnostics. Except as disclosed
on Schedule 3.03(m), Diagnostics and its subsidiaries are in compliance in all
material respects with all applicable statutes, laws, ordinances, regulations,
rules, judgments, decrees or orders of any Governmental Entity. Except as
disclosed on Schedule 3.03(m), neither the FDA nor any corresponding foreign
Governmental Entity has alleged that Diagnostics or any of its subsidiaries is
in violation of or, to the best knowledge of Ciba and CCorp, threatened to
withdraw or revoke, any Permit granted by it to Diagnostics or any of its
subsidiaries that is material to the business of Diagnostics, nor is the FDA or
any corresponding foreign Governmental Entity currently investigating or, to the
best knowledge of Ciba and CCorp, planning to investigate any alleged violation
of any such Permit that is material to the business of Diagnostics, nor has the
FDA or any corresponding foreign Governmental Entity requested that Diagnostics
or any of its subsidiaries cease to investigate, test or market any product that
is material to the business of Diagnostics for which Diagnostics or such
subsidiary has a Permit from the FDA or such corresponding foreign Governmental
Entity to investigate, test or market, as the case may be.
(ii) Except as not forth in Schedule 3.03(m), (A) neither Ciba nor
any of its subsidiaries has received any written communication from a
Governmental Entity that alleges that Diagnostics or any subsidiary is not in
compliance in any material respect with any Environmental Law and (B) Ciba and
CCorp have no knowledge of any environmental materials or information, other
than as listed in Schedule 3.03(m), that could reasonably be expected to have a
material adverse effect an Diagnostics. Ciba has made available to the Company
for its review to all material records and reports of Diagnostics related to any
actual or potential material liability of Diagnostics under Environmental Laws.
SECTION 3.04. REPRESENTATIONS AND WARRANTIES OF CIBA AND CCORP
RELATING TO BIOCINE. Ciba and CCorp represent and warrant to the Company as
follows:
(a) JV US HOLDINGS SHARES. All of the issued and outstanding
shares of capital stock (the "JV US Holdings Shares") of Ciba-Geigy Biocine
Corporation ("JV US
<PAGE>
40
Holdings") are owned by Ciba, CCorp or a wholly owned subsidiary of Ciba, free
and clear of any Liens. Except for the JV US Holdings Shares, no shares of
capital stock or other voting securities of JV US Holdings were issued,
reserved for issuance or outstanding and there are not any phantom stock or
other contractual rights the value of which is determined in whole or in part
by the value of any capital stock of the JV US Holdings ("JV US Holdings Stock
Equivalents"). When sold to the Company, the JV US Holdings Shares will be duly
authorized, validly issued, fully paid and non-assessable. Other than this
Agreement and the Ancillary Agreements, the JV US Holdings Shares are not
subject to any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting,
dividing or distribution of the JV US Holdings Shares. There are no outstanding
bonds, debentures, notes or other indebtedness of JV US Holdings having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of JV US Holdings may vote.
Except as set forth above, as of the date of this Agreement, there are not any
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which JV US Holdings is a party or
by which JV US Holdings is bound obligating JV US Holdings to issue, deliver or
sell or create, or cause to be issued, delivered or sold or created, additional
shares of capital stock or other voting securities or JV US Holdings Stock
Equivalents or obligating JV US Holdings or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Ciba has made available to
the Company for its review complete and correct copies of the Certificate of
Incorporation and By-laws of JV US Holdings as amended to the date of this
Agreement.
(b) JV US Holdings has good, legal and valid title to a 50%
general partnership interest (the "Biocine US Equity") in the Biocine Company, a
Delaware general partnership (the "Biocine Company"), free and clear of any
Liens. Other than the Biocine US Equity, JV US Holdings has no material assets,
and JV US Holdings has no material liabilities (whether absolute, accrued,
contingent or otherwise) unrelated to its being a general partner in the Biocine
Company. JV US Holdings has not engaged in any
<PAGE>
41
activities other than in connection with the business of the Biocine Venture.
(c) Ciba has good, legal and valid title to 50% equity interest
(the "JV Vax Shares") in JV Vax, B.V. ("JV Vax", and together with the Biocine
Company, the "Biocine Venture"), free and clear of any Liens.
SECTION 3.05. SURVIVAL OF REPRESENTATIONS REGARDING DIAGNOSTICS. The
representations and warranties of Ciba contained in Section 3.03 of this
Agreement and all claims and causes of action with respect thereto shall
terminate upon expiration of 12 months after the Closing Date. In the event
notice of any claim for indemnification under Section 3.06 hereof shall have
been given (within the meaning of Section 7.02) within the one-year survival
period, the representations and warranties that are the subject of such
indemnification claim shall survive, solely with respect to such claim, until
such time as such claim is finally resolved.
SECTION 3.06. INDEMNIFICATION BY CIBA WITH REGARD TO DIAGNOSTICS
REPRESENTATIONS. (a) Ciba hereby agrees that it shall indemnify, defend and hold
harmless the Company, its subsidiaries and, if applicable, their respective
directors, officers, shareholders, partners, attorneys, accountants, agents and
employees and their heirs, successors and assigns (the "Indemnified Parties")
from, against and in respect of any damages, claims, losses, charges, actions,
suits, proceedings, deficiencies, taxes, interest, penalties, and reasonable
costs and expenses (including reasonable attorneys' fees) (collectively, the
"LOSSES") imposed on, sustained, incurred or suffered by or asserted against
any of the Indemnified Parties, directly or indirectly relating to or arising
out of, subject to Section 3.06(b), any breach of any representation or warranty
made by Ciba contained in this Agreement for the period such representation or
warranty survives.
(b) Ciba shall not be liable to the Indemnified Parties for any
Losses with respect to the matters contained in Section 3.06(a) except to the
extent (and then only to the extent) the Losses therefrom exceed an aggregate
amount equal to $2,500,000 and then only for all such Losses in excess thereof
up to an aggregate amount equal to $100,000,000.
<PAGE>
42
SECTION 3.07. INDEMNIFICATION PROCEDURES. With respect to third party
claims arising under Section 3.06, all such claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
Section 3.07. In the event that any written claim or demand for which Ciba would
be liable to any Indemnified Party under Section 3.06 is asserted against or
sought to be collected from any Indemnified Party by a third party, such
Indemnified Party shall promptly, but in no event more than 15 days following
such Indemnified Party's receipt of such claim or demand, notify Ciba of such
claim or demand and the amount or the estimated amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such claim and demand) (the "CLAIM NOTICE"). Ciba shall promptly but in no event
more than 45 days from the personal delivery or mailing of the Claim Notice (the
"NOTICE PERIOD") notify the Indemnified Party (a) whether or not Ciba disputes
the liability of Ciba to the Indemnified Party hereunder with respect to such
claim or demand and (b) whether or not it desires to defend the Indemnified
Party against such claim or demand. All reasonable costs and expenses incurred
by Ciba in defending such claim or demand shall be a liability of, and shall be
paid by, Ciba; PROVIDED, HOWEVER, that the amount of such costs and expenses
that shall be a liability of Ciba hereunder shall be subject to the limitations
set forth in Section 3.06(b) hereof. Except as hereinafter provided, in the
event that Ciba notifies the Indemnified Party within the Notice Period that it
desires to defend the Indemnified Party against such claim or demand, Ciba shall
have the right to defend the Indemnified Party by appropriate proceedings and
shall have the sole power to direct and control such defense. If any Indemnified
Party desires to participate in any such defense it may do so at its sole cost
and expense; PROVIDED that if the claim or demand could involve the imposition
of a consent order, injunction or decree against the Company, then such
reasonable costs and expenses of the Indemnified Party shall constitute amounts
indemnifiable under Section 3.06. The Indemnified Party shall not settle a claim
or demand for which it is indemnified by Ciba without the written consent of
Ciba, which will not be unreasonably withheld. Ciba shall not, without the prior
written consent of the Indemnified Party, which will not be unreasonably
withheld, settle, compromise or offer to settle or compromise any such claim or
demand on a basis which would result in the imposition of a consent order,
injunction or decree or any other limitation which would materially restrict the
future activity or conduct of the Indemnified
<PAGE>
43
Party or any subsidiary or Affiliate thereof. If Ciba elects not to defend the
Indemnified Party against such claim or demand, whether by not giving the
Indemnified Party timely notice as provided above or otherwise, then the amount
of any such claim or demand, or, if the same be contested by the Indemnified
Party, then that portion thereof as to which such defense is unsuccessful (and
the reasonable costs and expenses pertaining to such defense) shall be the
liability of Ciba hereunder, subject to the limitations set forth in Section
3.06(b) hereof. To the extent Ciba shall direct, control or participate in the
defense or settlement of any third party claim or demand, the Indemnified Party
shall give Ciba and its counsel access to, during normal business hours, the
relevant business records and other documents, shall permit then to consult with
the employees and counsel of the Indemnified Party and shall provide such other
assistance as is reasonably requested by Ciba.
SECTION 3.08. TAX INDEMNITY REGARDING DIAGNOSTICS. (a) Ciba shall
indemnify the Company for any taxes imposed on Diagnostics with respect to any
taxable period, or portion thereof, ending on or prior to the Closing Date,
except (i) to the extent such taxes are reflected on the July 3, 1994 Balance
Sheet and (ii) to the extent any such taxes are paid by Ciba, Diagnostics or any
of their affiliates on or prior to the Closing Date. With respect to any taxes
for a taxable period that includes but does not end on the Closing Date, the
amount of taxes subject to indemnification hereunder shall be calculated as if
such taxable period ended as of the close of business on the Closing Date,
except that property taxes calculated on an annual basis shall be prorated based
on the number of days in the annual period elapsed through the Closing Date
compared to the number of days in the annual period elapsing after the Closing
Date.
(b) Ciba represents to the Company that the amount of "net
operating losses" ("NOLs") available to Diagnostics for Federal income tax
purposes immediately prior to the Closing is equal to at least $42,000,000. If
the amount of NOLs so available as of such time is actually less than the amount
set forth in the preceding sentence, Ciba shall indemnify the Company to the
extent that the liability of Diagnostics for Federal income taxes for any
taxable period beginning on or after the Closing Date is actually increased by
reason of the inaccuracy of such representation. Ciba makes no representation
with respect
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44
to the ability of Diagnostics or any such Federal consolidated group to use
after the Closing Date any NOLs available immediately prior to the Closing Date,
and Ciba shall not have any indemnity obligation hereunder to the extent that
Diagnostics (or any such Federal consolidated group) is unable to use after the
Closing Date NOLs available immediately prior to the Closing Date.
(c) Ciba shall control all aspects of any audit or examination by
any taxing authority, and any administrative or judicial proceedings relating to
or resulting from any such audit or examination, that might result in Ciba's
being required to make an indemnity payment pursuant to paragraph (a) or (b)
(any such audit; examination, administrative proceeding or judicial proceeding,
a "Relevant Proceeding"). The Company and its affiliates (including Diagnostics)
shall promptly notify Ciba in writing upon their learning of the pendency of a
Relevant Proceeding and shall fully cooperate with Ciba in the conduct of such
Relevant Proceeding. Without the prior written consent of Ciba, neither the
Company nor any of its affiliates (including Diagnostics) shall settle or
compromise any claim for taxes that might result in Ciba's being required to
make an indemnity payment pursuant to paragraph (a) or (b).
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
OF THE COMPANY AND DIAGNOSTICS
SECTION 4.01. CONDUCT OF BUSINESS. (a) CONDUCT OF BUSINESS BY THE
COMPANY. During the period from the date of this Agreement to the first day on
which each of the three persons designated on Schedule 2.01 of the Governance
Agreement shall have become Directors of the Company, the Company shall, and
shall cause its subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers, scientists and other employees and
preserve their relationships with customers, suppliers, licensors, licensees,
distributors, joint ventures and others having business dealings with them
except to the extent that the failure to do so could not reasonably be
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45
expected to have an adverse effect on the Company. Without limiting the
generality of the foregoing, the Company shall not take or permit any of its
subsidiaries to take any action (including any omission to take an action) that
would require the approval of Ciba or a majority or all of the Investor
Directors (as defined in the Governance Agreement) after the Closing (assuming
solely for this purpose that Ciba's Percentage Interest (as defined in the
Governance Agreement) is at least 40%. During the period from the date of this
Agreement to the first day on which each of the three persons designated on
Schedule 2.01 of the Governance Agreement shall have become Directors of the
Company, the Company shall not, and shall not permit any of its subsidiaries to,
without first consulting with Ciba (which consultation shall include providing
Ciba with prior opportunity to meet with management of the Company and, if
requested by Ciba, to meet with the Company's Board of Directors in the event it
has acted or is acting on such matter):
(i) (x) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned subsidiary
of the Company or any of its subsidiaries to its parent, (y) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock or (z) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its subsidiaries or
any other securities thereof or any rights, warrants or options to acquire
any such shares or other equity securities, except for shares repurchased
or redeemed pursuant to any existing employment arrangements;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares,
voting securities or convertible securities (other than (x) the issuance of
new employee Stock Options under existing employee benefit plans or Common
Stock upon the exercise or conversion of Stock Options, warrants or
convertible securities outstanding on the date of this Agreement and in
accordance with their present terms, (y) the purchase of Common Stock
pursuant to the 1988 Employee Stock Purchase Plan, in
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46
accordance with its present terms and (z) the issuance and sale of the New
Shares in accordance with the terms hereof);
(iii) in the case of the Company amend its certificate of
incorporation, by-laws or other comparable charter or organizational
documents;
(iv) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any material business or any corporation, partnership,
joint venture, association or other business organization or division
thereof or (y) any assets that are material, individually or in the
aggregate, to the Company and its subsidiaries taken as a whole, except
purchases of inventory in the ordinary course of business consistent with
past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its material
Intellectual Property or any other material properties or assets, except
sales of inventory in the ordinary course of business consistent with past
practice;
(vi) enter into any material research and development Joint
Ventures or other research and development arrangements with third parties
or enter into any agreement that would materially restrict Ciba's potential
access to the Company's current or future Intellectual Property or products
of the Company or its subsidiaries;
(vii) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, or (y) make any loans, advances or capital contributions to, or
investments in, any other person, other than (1) to the Company or any
direct or indirect wholly owned subsidi-
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47
ary of the Company, (2) pursuant to existing contractual rights and (3)
non-material loans or advances to employees in the ordinary cause of
business consistent with past practice;
(viii) make or agree to make any new capital expenditure or
expenditures (other than capital expenditures which are contained in a duly
approved budget of the Company as of the date hereof, which, individually,
is in excess of $5,000,000 or, in the aggregate, are in excess of
$10,000,000;
(ix) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the
Company included in the Filed SEC Documents or incurred in the ordinary
course of business consistent with past practice;
(x) change any accounting policy or procedure;
(xi) withdraw any application, pending or granted, for a Permit to
investigate, test or market, or for the governmental license of, any
product; or
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions;
IT BEING UNDERSTOOD that nothing in this sentence shall in any way constitute an
exception to the Company's obligations under the first two sentences of this
Section 4.01(a).
(b) CONDUCT OF DIAGNOSTICS BUSINESS. During the period from the
date of this Agreement to the Closing, Ciba and CCorp shall cause Diagnostics
and its subsidiaries to carry on their business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and, to
the extent consistent therewith, use all reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers, scientists and other employees and preserve their
relationships with customers, suppliers, licensors, licensees, distributors,
joint ventures and others having
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48
business dealings with them except to the extent that the failure to do so could
not reasonably be expected to have an adverse effect on Diagnostics. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Closing, Ciba and CCorp shall cause Diagnostics and its
subsidiaries to not:
(i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned subsidiary of
Diagnostics to its parent except as contemplated by this Agreement;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities;
(iii) amend its certificate of incorporation, bylaws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (x) by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (y) any
assets that are material, individually or in the aggregate, to Diagnostics
and its subsidiaries taken as a whole, except purchases of inventory in the
ordinary course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any material Diagnostics
Intellectual Property or any other material properties or assets, except
sales of inventory in the ordinary course of business consistent with past
practice;
(vi) enter into any material research and development Diagnostic
Joint Ventures or other material research and development arrangements with
third parties or enter into any agreement that would materially restrict
the Company's potential access to
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49
current or future Diagnostics Intellectual Property or products of
Diagnostics or its subsidiaries;
(vii) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Diagnostics or
any of its subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, or (y) make any loans, advances or capital contributions to, or
investments in, any other person, other than (1) to Diagnostics or any
direct or indirect wholly owned subsidiary of Diagnostics, (2) pursuant to
existing contractual rights and (3) non-material loans or advances to
employees in the ordinary course of business consistent with past practice;
(viii) make or agree to make any new capital expenditure or
expenditures (other than capital expenditures which are contained in a duly
approved budget of Diagnostics as of the date hereof) which, individually,
is in excess of $1,000,000 or, in the aggregate, are in excess of
$5,000,000;
(ix) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the
Diagnostics Balance Sheet or incurred in the ordinary course of business
consistent with past practice;
(x) change any accounting policy or procedure;
(xi) withdraw any application, pending or granted, for a Permit to
investigate, test or market, or for the governmental license of, any
product; or
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions.
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50
(c) OTHER ACTIONS. The Company, Ciba, CCorp and Holdings shall
not, and shall not permit any of their respective subsidiaries to, take any
action that would, or that could reasonably be expected to, result in (i) any of
the representations and warranties of such party set forth in this Agreement or
the Ancillary Agreements that are qualified as to materiality becoming untrue,
(ii) any of such representations and warranties that are not so qualified
becoming untrue in any material respect or (iii) any of the conditions set forth
in Article II not being satisfied.
(d) ADVICE OF CHANGES. The Company and Ciba shall promptly notify
the other of any change or event having, or that, insofar as can reasonably be
foreseen, would have, a material adverse effect on such party.
SECTION 4.02. NO SOLICITATION. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) solicit or
initiate, or encourage the submission of, any takeover proposal, (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to expedite any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any takeover proposal; PROVIDED, HOWEVER, that to the
extent required by the fiduciary obligations of the Board of Directors of the
Company, as determined in good faith by the Board of Directors based on the
advice of outside counsel, the Company may, (A) in response to an unsolicited
request therefor, furnish information with respect to the Company to any person
pursuant to a customary confidentiality agreement and discuss such information
(but not the terms of any possible takeover proposal) with such person and (B)
upon receipt by the Company of a takeover proposal, following delivery to Ciba
of the notice required pursuant to Section 4.02(c), participate in negotiations
regarding such takeover proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any executive officer of the Company or any of its subsidiaries or
any investment banker, attorney or other advisor or representative of the
Company or any of its subsidiaries, whether or not such person is purporting to
act on behalf of the Company or any of its subsidiaries or otherwise, shall
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51
be deemed to be a breach of this Section 4.02(a) by the Company. For purposes of
this Agreement, "takeover proposal" means any proposal for a tender or exchange
offer, a merger or other business combination or a sale of securities,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Significant Subsidiaries or any proposal or offer to
acquire in any manner, directly or indirectly, a material equity interest in or
a material amount of voting securities or assets of, the Company or any of its
Significant Subsidiaries, other than the transactions contemplated by this
Agreement and the Ancillary Agreements or any other transaction the consummation
of which would or could reasonably be expected to impede, interfere with,
prevent or materially delay, or which would or could reasonably be expected to
materially dilute the benefits to Ciba of, the transactions contemplated hereby
or by the Ancillary Agreements.
(b) Subject to the following sentence, the Board of Directors of
the Company shall not (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to Ciba, CCorp or Holdings, the approval or recommendation
by such Board of Directors of the Offer or the other transactions contemplated
hereby, (ii) approve or recommend, or propose to approve or recommend, any
takeover proposal or (iii) approve or authorize the Company's entering into any
agreement with respect to any takeover proposal. Notwithstanding the foregoing,
in the event the Board of Directors of the Company receives a takeover proposal
that, in the exercise of its fiduciary obligations (as determined in good faith
by the Board of Directors based on the advice of outside counsel), it determines
to be a superior proposal, the Board of Directors may (subject to the following
sentences) withdraw or adversely modify its approval or recommendation of the
Offer and the other transactions contemplated hereby and approve or recommend
any such superior proposal, approve or authorize the Company's entering into an
agreement with respect to such superior proposal, approve the solicitation of
additional takeover proposals or terminate this Agreement, in each case at any
time after the fourth business day following notice to Ciba (a "Notice of
Superior Proposal") advising Ciba that the Board of Directors has received a
superior proposal, specifying the material term of the structure of such
superior proposal. The Company may take any of the foregoing actions pursuant
to the preceding sentence only if a takeover proposal that was a superior
proposal at the time
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52
of delivery of a Notice of Superior Proposal continues to be a superior proposal
in light of any improved transaction proposed by Ciba prior to the expiration of
the four business day period specified in the preceding sentence. In addition,
if the Company proposes to withdraw or adversely modify its approval or
recommendation of the Offer and the other transactions contemplated hereby or to
solicit additional takeover proposals or to enter into an agreement with respect
to any takeover proposal, concurrently with withdrawing or adversely modifying
such approval or recommendation, approving such solicitation or entering into
such agreement, the Company shall pay, or cause to be paid, to Ciba the Expense
Fee (as defined in Section 5.05(b)) and, in the event the Company shall enter
into such an agreement, the agreement shall provide for the payment to Ciba of
the Termination Fee (as defined in Section 5.05(c)) upon the consummation of the
transaction contemplated by such agreement. For purposes of this Agreement, a
"superior proposal" means any bona fide takeover proposal to acquire, directly
or indirectly, a material equity interest in or a material amount of voting
securities or assets of the Company or any of its Significant Subsidiaries for
consideration consisting of cash and/or securities, and otherwise on terms which
the Board of Directors of the Company determines in its good faith reasonable
judgment (based on the advice of a financial advisor of nationally recognized
reputation) to provide greater aggregate value to the Company's stockholders
than the transactions contemplated by this Agreement and the Ancillary
Agreements (or otherwise proposed by Ciba as contemplated above). Nothing
contained herein shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act
prior to the fourth business day following Ciba's receipt of a Notice of
Superior Proposal provided that the Company does not withdraw or modify its
position with respect to the Offer or the other transactions contemplated hereby
or approve or recommend a takeover proposal.
(c) In addition to the obligations of the Company set forth in
paragraph (b), the Company shall promptly advise Ciba of the existence of any
request for information or of any takeover proposal, or any inquiry with respect
to, or which could reasonably be expected to lead to, any takeover proposal.
(d) If the Company shall have determined to solicit additional
takeover proposals as permitted by this
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53
Section 4.02, Ciba shall be allowed to submit a bid or proposal, which need not
contemplate the structure or business contributions provided for by this
Agreement or the terms of the Governance Agreement or any other Ancillary
Agreement (a "Ciba Alternative Transaction"), and Ciba otherwise shall have the
right to participate in the solicitation and have its bid or proposal evaluated
on a basis no less than favorable as any other participant in the solicitation.
Without limiting the foregoing, the Company shall not condition Ciba's ability
to submit a bid or proposal on a waiver of any rights of Ciba or its Affiliates
pursuant to any collaboration agreement, including the agreements related to the
Biocine Venture.
(e) If the material terms of any takeover proposal are publicly
announced or otherwise become publicly available and as a result the Offer and
the other the transactions contemplated hereby are not reasonably likely to be
consummated, and the Company shall not have determined to solicit additional
takeover proposals, the Company shall not take, or omit to take, any action if
as a result of such action or omission the ability of Ciba to improve the terms
of the transactions contemplated hereby, or the ability of Ciba to propose,
obtain any necessary stockholder approval of and consummate any Ciba
Alternative Transaction that offers value to the Company's stockholders at least
as great as the value available from the transactions contemplated hereby would
be adversely affected as compared to the ability of any other Person proposing a
takeover proposal to obtain the approval of the Company's stockholders thereof
or to otherwise consummate such takeover proposal. Without limiting the
generality of the foregoing, the Company shall not take any action that would
enhance the ability of any other Person proposing a takeover proposal to obtain
the approval of the Company's stockholders or otherwise consummate such takeover
proposal (including taking any action with respect to amending, modifying or
waiving any provision of the Rights Plan or granting any approval pursuant to
Section 203 of the Delaware General Corporation Law) without also taking a
comparable action that would similarly enhance the ability of Ciba to obtain any
necessary approval of the Company's stockholders of, and otherwise to
consummate, a Ciba Alternative Transaction and concurrently withdrawing any
impediments to a Ciba Alternative Transaction that do not similarly impede such
other Person; PROVIDED, HOWEVER, that nothing in this Section 4.02 shall prevent
the Company from entering into a
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54
binding agreement with respect to a takeover proposal if the Company is
otherwise in compliance with this Article IV.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. CONSOLIDATION. Ciba and CCorp agree that, unless
otherwise required by applicable accounting standards, neither Ciba nor CCorp
shall cause the Company's accounts to be consolidated with its accounts for
financial accounting purposes for any period in which Ciba does not own or
control at least 50% of the outstanding Common Stock or the Voting Power (as
defined in the Governance Agreement).
SECTION 5.02. ACCESS TO INFORMATION; CONFIDENTIALITY. Each of the
Company and Ciba shall, and shall cause each of its respective subsidiaries to,
afford to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Closing to
all their respective properties, books, contracts, commitments, personnel and
records (in the case of Ciba, only to the extent it relates to Diagnostics or
the Biocine Venture and, during such period, each of the Company and Ciba shall,
and shall cause each of its respective subsidiaries to, furnish promptly to the
other party (a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
Federal or state securities laws and (b) all other information concerning its
business, properties and personnel (in the case of Ciba, only to the extent it
relates to Diagnostics or the Biocine Venture) as such other party may
reasonably request. Except as required by law, each of the Company and Ciba
shall hold, and shall cause its respective officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to hold, in
confidence any nonpublic information obtained from the other pursuant to this
Section 5.02 until such time as such information becomes publicly available
(otherwise than through the wrongful act of any such person) and shall use its
best efforts to cause such persons not to disclose such information to others
without the prior written consent of the Company or Ciba, as the case may be. In
the event of the termination of this Agreement for any reason, the
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55
Company and Ciba shall promptly return or destroy all documents containing
nonpublic information so obtained from the other party or any of its
subsidiaries and any copies made of such documents.
SECTION 5.03. REASONABLE EFFORTS; NOTIFICATION. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties shall
use all reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the Ancillary Agreements, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities, if any)
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or any of the Ancillary
Agreements or the consummation of the transactions contemplated by this
Agreement or the Ancillary Agreements, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the Ancillary Agreements. In
connection with and without limiting the foregoing, the Company and its Board of
Directors shall (i) take all action requested by Ciba reasonably necessary so
that no state takeover statute or similar statute or regulation is or becomes
applicable to this Agreement, the Ancillary Agreements or any transaction
contemplated by this Agreement or the Ancillary Agreements and (ii) if any state
takeover statute or similar statute or regulation becomes applicable to this
Agreement, any Ancillary Agreement or any transaction contemplated by this
Agreement or any Ancillary Agreement, take all action reasonably requested by
Ciba and within the Company's power to permit the transactions contemplated by
this Agreement and the Ancillary Agreements to be consummated as promptly as
practicable on the terms contemplated by this Agreement
<PAGE>
56
and the Ancillary Agreements and otherwise take such actions as are reasonably
requested by Ciba and within the Company's power to minimize the effect of such
statute or regulation on the transactions contemplated by this Agreement and the
Ancillary Agreements. Notwithstanding the foregoing, the Board of Directors of
the Company shall not be prohibited from taking any action permitted by Section
4.02(b).
(b) The Company shall give prompt notice to Ciba, and Ciba shall
give prompt notice to the Company, of (i) any representation or warranty made by
it contained in this Agreement or any Ancillary Agreement that is qualified as
to materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement or any Ancillary
Agreement; PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement or the
Ancillary Agreements.
SECTION 5.04. RIGHTS AGREEMENT. The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section
3.01(l)) requested in writing by Ciba in order to render the Rights inapplicable
to Ciba, CCorp and Holdings in connection with consummation of the transactions
contemplated hereby and by the Ancillary Agreements. Except as requested in
writing by Ciba, the Board of Directors of the Company shall not (i) amend the
Rights Agreement in a manner adverse to Ciba or Holdings or (ii) take any action
with respect to, or make any determination under, the Rights Agreement
(including a redemption of the Rights); in each case except as otherwise
expressly permitted under Section 4.02(b).
SECTION 5.05. FEES AND EXPENSES. (a) Except as provided below, all
fees and expenses incurred in connection with the Offer, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Offer or the sale of the New Shares on the terms
contemplated hereby is consummated.
(b) The Company shall pay, or cause to be paid, to Ciba a fee of
$5,000,000 in same day funds (the "Expense
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57
Fee"), payable as partial reimbursement of Ciba's out-of-pocket expenses:
(i) upon demand, unless this Agreement is terminated by the
Company and Ciba, CCorp or Holdings shall have failed to perform in any
material respect any of its obligations under this Agreement, if this
Agreement is terminated pursuant to Section 6.01(a)(ii) as a result of the
failure of any condition set forth in clauses (i), (ii) or (iv) of
paragraph (e), or paragraph (f) or (g) of Exhibit A; or
(ii) upon demand, unless this Agreement is terminated by the
Company and Ciba, CCorp or Holdings shall have failed to perform in any
material respect any of its obligations under this Agreement if, (x) at any
time on or after the date of this Agreement until one year following any
termination of this Agreement, any person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) (other than Ciba or any of its
affiliates) shall have acquired, directly or indirectly, the Company, all
or substantially all its assets or more than 33-1/3% of the shares of
Common Stock then outstanding or entered into any agreement providing for
such a transaction, and (y)(A) on or after the date of this Agreement and
prior to the expiration of the Offer, any person or group shall have made a
takeover proposal, (B) the Offer, if required to have been commenced, shall
have remained open until the scheduled expiration date immediately
following the date such takeover proposal was first publicly announced and
(C) this Agreement shall have been terminated pursuant to Section
6.01(a)(ii).
Notwithstanding the foregoing, if the transactions contemplated by this
Agreement as a Ciba Alternative Transaction involving the transfer Diagnostics
or the Ciba Biocine Business to the Company is thereafter consummated, Ciba
shall in connection therewith refund the Expense Fee, together with interest at
the prime rate of Chemical Bank in New York City, to the Company.
(c) The Company shall pay, or cause to be paid, to Ciba an
additional fee of $50,000,000 in same day funds (the "Termination Fee"), unless
this Agreement is terminated by the Company and Ciba, CCorp or Holdings shall
have failed to perform in any material respect any of its obligations
under this Agreement, concurrently with the consummation of
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(i) any transaction pursuant to an agreement entered into in accordance with
Section 4.02(b), (ii) any other transaction within the definition of a "takeover
proposal" that is consummated at any time on or after the date of this Agreement
until one year following any termination of this agreement with any party to
such agreement or any other person that made a takeover proposal prior to
termination of the Agreement or (iii) any other transaction with respect to
which the Expense Fee is (or if already paid would have been) paid under
paragraph (b) (ii) above.
SECTION 5.06. PUBLIC ANNOUNCEMENTS. Ciba, CCorp and Holdings, on the
one hand, and the Company, on the other hand, shall consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other public statements with respect to the
transactions contemplated by this Agreement and the Ancillary Agreements and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law, court process
or by obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 5.07. STOCKHOLDER LITIGATION. The Company shall give Ciba the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to the transactions
contemplated by this Agreement and the Ancillary Agreements; PROVIDED, HOWEVER,
that no such settlement shall be agreed to until the Company has consulted with
Ciba.
SECTION 5.08. CCD EMPLOYMENT ARRANGEMENTS. (a) CCorp and Diagnostics
shall take such actions as shall be necessary to cease, effective on the Closing
Date, accrual of benefits under each U.S. Diagnostics Benefit Plan that is a
defined benefit pension plan and each supplemental retirement plan covering U.S.
employees of Diagnostics and its subsidiaries. CCorp shall assume full
sponsorship of, and all liability under, each such plan effective on the Closing
Date. Neither Diagnostics nor the Company shall at any time after the Closing
Date have any responsibility for the administration of, or liability under,
those plans; provided that Diagnostics shall reimburse CCorp for the cost of
benefits under each supplemental plan to the extent that such benefits are
attributable to contributions that would have been made to Diagnostics'
Investment Plan but for limitations of the Internal Revenue Code.
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59
(b) CCorp and Diagnostics shall take such actions as shall be
necessary to terminate, effective on the Closing Date, retiree health, dental
and life benefit coverage for all Diagnostics and subsidiaries employees not
then receiving those benefits and shall assume all liability for any such
benefits, whether for current or future retirees, and full sponsorship of any
plan providing such a benefit. Neither Diagnostics nor the Company shall at
any time after the Closing Date have any responsibility for the
administration of, or liability under, those plans. However, if the Company
so elects within ten (10) days of the date hereof, the termination date shall
be extended to the end of a period (not to exceed ninety (90) days following
the Closing), which notice shall be given as soon as practicable following
the date of such election, in which case Diagnostics shall reimburse CCorp
for fifty percent of the cost of such benefits provided with respect to
eligible employees who give notice to retire and retire during such part of
such extension period as falls after the Closing Date.
(c) As soon as practicable following the Closing Date, U.S.
Diagnostics employees shall be eligible to participate in the Company's 401(k)
Plan in accordance with its terms and the assets (in cash) and liabilities of
the Diagnostics Investment Plan shall be transferred to the Company's 401(k)
Plan. Diagnostics employees shall be credited with their period of service with
Diagnostics for purposes of eligibility and vesting under the Company's 401(k)
Plan.
(d) On or as soon as practicable following the Closing Date,
U.S. Diagnostics employees shall generally be entitled to participate in the
welfare benefit plans and stock option plans generally made available to
similarly situated employees of the Company and shall be treated no less
favorably than similarly situated employees of the Company and such employees
shall cease to participate in Diagnostics welfare benefit plans, except to
the extent that the Company determines to continue the Diagnostics benefits
(other than retiree benefits). CCorp and Diagnostics shall cooperate with the
Company in facilitating such change in benefits. If such change occurs other
than on the first day of a plan year, Diagnostics employees' credits for
expenses incurred toward deductibles and co-payments under Diagnostics' plans
before the change shall be credited to them under the Company's plans for the
remainder of the year of change.
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(e) The Company shall negotiate in good faith, after consulting
with Ciba, regarding appropriate terms pursuant to which the Company or a
subsidiary thereof shall employ C. William Zadel as the chief operating officer
of the businesses constituting Diagnostics for a period of five years following
the Closing, which terms shall be reasonably satisfactory to Ciba. If the
Company does not employ C. William Zadel after the Closing, it shall provide him
with severance payments in an amount which shall be at least equal to the
aggregate salary and other compensation that he would have received over the
three year period following the Closing based on his current salary and other
compensation.
SECTION 5.09. NASDAQ LISTING. The Company shall use its best efforts
to cause the Common Stock to continue to be included in The Nasdaq National
Market ("NASDAQ") after the Closing.
SECTION 5.10. 1988 AGREEMENT. The Company hereby waives the
provisions of Section 9 of the 1988 Agreement to the extent necessary to
permit the purchase by Holdings of shares of Common Stock pursuant to the
Offer and the consummation of the Share Issuances and the other transactions
contemplated hereby and by the Ancillary Agreements. The parties hereto
hereby agree that the 1988 Agreement will terminate as of the Closing Date,
PROVIDED that Section 10.01 thereof shall continue in effect with respect
only to information disclosed by the Company to Ciba after November 14, 1988,
and prior to October 18, 1994, in accordance with the terms of such agreement.
SECTION 5.11. ONGOING DIAGNOSTICS ARRANGEMENTS. Notwithstanding
anything in Section 4.01 to the contrary, all agreements between Diagnostics
or any of the its subsidiaries on the one hand and Ciba or any of its other
subsidiaries on the other hand shall terminate at or prior to the Closing
Date; PROVIDED that the cross-licenses between such persons shall remain in
place with respect to intellectual property that is owned by either party as
of the date hereof, but shall not remain in place with respect to
intellectual property of the parties developed or acquired on or after the
Closing Date. Ciba agrees that it and its subsidiaries shall provide to
Diagnostics and its subsidiaries at cost any administrative services,
trademark support services and other services, including incidental research
and development services, which they currently provide to Diagnostics for a
reasonable period after the Closing Date. The parties shall negotiate in good
faith
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61
regarding an agreement to continue some or all of the arrangements contained in
such agreements including with respect to research and development agreements.
SECTION 5.12. CIBA GUARANTEE; REVOLVING CREDIT FACILITY. (a) At or
as soon as practicable after the Closing, but in no event prior to the
Company's execution and delivery of the Reimbursement Agreement (as defined
below), Ciba shall issue to a bank selected by Ciba and reasonably acceptable
to the Company (the "Selected Bank") a guarantee for the benefit of the
Company (the "Ciba Guarantee") pursuant to which Ciba shall guarantee the
obligations of the Company under a revolving credit facility denominated in
U.S. dollars (the "Credit Facility") provided by the Selected Bank. The Ciba
Guarantee shall be reasonably satisfactory in form and substance to Ciba and
to the Selected Bank (it being understood that Ciba will agree to customary
terms for guarantees of the type contemplated hereby). The Ciba Guarantee
shall expire on the eighth anniversary of the date hereof (the "Guarantee
Termination Date").
(b) Simultaneously with the issuance of the Ciba Guarantee and
subject to the Company's execution and delivery of the Reimbursement Agreement,
Ciba shall cause the Selected Bank to enter into appropriate agreements with the
Company setting forth the terms and conditions of the Credit Facility. The
Credit Facility will be provided to the Company on the following terms and
conditions and on such other terms and conditions that are customary to
revolving credit facilities of its type: (i) the principal amount of the Credit
Facility that may be outstanding at any time is $425,000,000 (as the same may
be reduced in accordance with the next sentence, the "Maximum Borrowing
Amount"). The Maximum Borrowing Amount shall be reduced by $1.50 for each $1.00
in additional funding (up to $50,000,000 in such additional funding) requested
by the Company under the Research and Development Agreement in accordance with
Exhibit B hereto; and PROVIDED FURTHER that the Company shall thereupon repay
any outstanding amounts under the Credit Facility to the extent such amounts
exceed the Maximum Borrowing Amount; (ii) the Company may not borrow or reborrow
any amounts under the Credit Facility after the fifth anniversary of the Closing
unless Ciba and the Company otherwise agree; (iii) the Company shall if the
Index Debt could reasonably be expected to be rated Investment Grade by Moody's
or S&P (each as defined in the Governance Agreement) in the event that the Ciba
Guarantee
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62
immediately terminated (the "Investment Grade Condition") as of the fifth
anniversary hereof, then the Company shall promptly repay or refinance (without
the benefit of the Ciba Guarantee) all principal amounts outstanding under the
Credit Facility and the Credit Facility and the Ciba Guarantee shall thereupon
terminate; PROVIDED, HOWEVER, that if the Investment Grade Condition is not then
satisfied, then the Credit Facility and the Ciba Guarantee shall remain in place
and the principal amount of the Credit Facility shall be repaid in equal
installments on a quarterly basis over the period from such fifth anniversary to
the Guarantee Termination Date; and (iv) the interest rate payable under the
Credit Facility shall be equal to the applicable cost of funds of CCorp.
(c) Simultaneously with the issuance of the Ciba Guarantee, the
Company shall execute and deliver a reimbursement agreement (the "Reimbursement
Agreement") in form and substance satisfactory to Ciba and the Company pursuant
to which the Company shall agree to reimburse Ciba for any payments made by Ciba
pursuant to the Ciba Guarantee as well as all reasonable out-of-pocket costs and
expenses incurred by Ciba in connection with the Ciba Guarantee. The Company's
obligations under the Reimbursement Agreement shall be fully collateralized by
the Reimbursement Agreement Collateral. The "Reimbursement Agreement Collateral"
shall mean any collateral, including equity securities of the Company, that are
reasonably acceptable to Ciba. The Reimbursement Agreement shall contain a
negative pledge covenant with respect to the Reimbursement Agreement Collateral
and such other terms and conditions as are customary to reimbursement agreements
of its type.
SECTION 5.13. STOCKHOLDER APPROVAL OF SHARE ISSUANCES. The Company
represents that the Board of Directors of the Company, at a meeting duly called
and held, duly and unanimously adopted a resolution recommending that if the
approval of the stockholders is required under the NASDAQ rules for the issuance
of any shares of Common Stock issuable in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements (the "Share
Issuances"), the Company's stockholders approve such Share Issuances. The
Company agrees that a vote of its stockholders to approve such Share Issuances
will be held at the next regularly schedule stockholders meeting if such
approval is so required under the NASDAQ rules.
<PAGE>
63
SECTION 5.14. EMPLOYEE STOCK OPTION ARRANGEMENTS. Each of Ciba and
the Company shall take all actions necessary to implement the arrangements
regarding employee Stock Options of the Company agreed upon by the parties
hereto and set forth in Sections 5.14(a) through (f) below.
(a) Each holder listed on Schedule 5.14(a) of outstanding employee
Stock Options which may be exercised as of the date hereof in accordance with
their terms, the number of which options held by such holder and the expiration
dates and exercise prices thereof being listed on Schedule 5.14(a) ("Vested
Options"), shall have the right, (the "Vested Option Payment Right") but not the
obligation to receive from the Company, and the Company shall pay to such holder
upon the exercise of the Vested Option Payment Right, the Option Participation
Payment on the number of Vested Options with respect to which the Vested Option
Payment Right is exercised by such holder; PROVIDED that such holder may only so
exercise the number of Vested Options held by such holder in any Options Tranche
equal to the product of (x) the entire number of options held by such holder in
such Options Tranche and (y) the Percentage Factor, rounded to the nearest whole
number. The Vested Option Payment Right shall be exercisable by a holder of
Vested Options at any time prior to the expiration date thereof by written
notice to the Company, who shall then promptly notify Ciba of such exercise;
PROVIDED that upon the exercise of the Vested Option Payment Right with respect
to any Vested Options, such Vested Options with respect to which the Vested
Option Payment Right was exercised shall be immediately cancelled, and the
Company shall have no obligation to make the Option Participation Payment with
respect to such Vested Options until they have been cancelled. "Option
Participation Payment" shall mean, with respect to any options of the same
Options Tranche, a cash payment by Ciba in an amount equal to the Offer Price
MINUS the exercise price of such options. An "Options Tranche" shall mean any
series of options with the same expiration date and exercise price.
(b) Each holder listed on Schedule 5.14(b) of outstanding employee
Stock Options (other than Type B Non-Vested Options (as defined below)) which
may not be exercised as of the date hereof in accordance with their terms, the
number of which options held by such holder and the expiration dates and
exercise prices thereof being listed on Schedule 5.14(b) ("Type A Non-Vested
Options"), shall have the right (the "Type A Non-Vested Option Payment
<PAGE>
64
Right") but not the obligation to receive from the Company, and the
Company shall pay to such holder upon the exercise of the Type A Non-Vested
Option Payment Right, the Option Participation Payment on the number of Type
A Non-Vested Options with respect to which the Type A Non-Vested Option
Payment Right is exercised by such holder; PROVIDED that such holder may only
so exercise the number of Type A Non-Vested Options held by such holder in
any Options Tranche equal to the product of (x) the entire number of options
held by such holder in such options Tranche and (y) the Percentage Factor,
rounded to the nearest whole number. The Type A Non-Vested Option Payment
Right shall be exercisable by a holder of Type A Non-Vested Options at any
time after such options became exercisable in accordance with their terms and
prior to the expiration date of such options by written notice to the
Company, who shall then promptly notify Ciba of such exercise; PROVIDED that
upon the exercise of the Type A Non-Vested Option Payment Right with respect
to any Type A Non-Vested Options, such Type-A Non-Vested Options with respect
to which the Type A Non-Vested Option Payment Right was exercised shall be
immediately cancelled, and the Company shall have no obligation to make the
Option Participation Payment with respect to such Type A Non-Vested Options
until they have been cancelled.
(c) At or as soon as practicable after the Closing, the Company
shall make a cash payment to each holder listed on Schedule 5.13(c) of
employee Stock Options with respect to which the holder's exercise right is
not vested as of the date hereof, the number of which options held by each
holder and the expiration dates and exercise prices thereof being listed on
Schedule 5.13(c) (the "Type B Non-Vested Options") equal to, with respect to
each series of options with the same exercise price, the product of (x) the
Offer Price MINUS the exercise price of such options and (y) the Percentage
Factor, rounded to the nearest whole number.
(d) If the Company determines that shareholder approval of any
right to a payment under this Section 5.14 is required or desirable for
regulatory purposes, the grant of such right shall be subject to such
approval and no grant of such right or payment under such right shall be made
before such approval. The Company may impose such further conditions upon any
such right as it shall deem appropriate or necessary to assure compliance
with regulatory rules.
<PAGE>
65
Ciba agrees to vote any shares owned or controlled by Ciba or any affiliate in
favor of such approval.
(e) The Company shall notify Ciba of each payment made by it
pursuant to Sections 5.14(a) through (d) and Ciba shall promptly reimburse
the Company for the amount of each such payment, PROVIDED that in the case of
Sections 5.14(c) and 5.14(b) the options with respect to which such payments
were made shall have been canceled at the time of such notice.
(f) At or immediately after the Closing, the Company shall issue
employee Stock Options to purchase shares of Common Stock not to exceed
1,000,000 such employee Stock Options; PROVIDED that the exercise price of such
options shall be the fair market value of the options as defined in the
applicable stock options plan.
SECTION 5.15. DIAGNOSTICS BALANCE SHEET. (a) At the Closing, Ciba
shall cause Diagnostics to have net shareholder's equity (in the determination
of which pensions and other post retirement benefit liabilities will be deemed
to be zero) of not less than $188,651,000 and no indebtedness except as set
forth in Section 5.15 (b) below.
(b) At the Closing, Diagnostics shall continue to be obligated
under indebtedness to third parties in accordance with the terms thereof. In
addition, at Closing Diagnostics shall have a debt obligation to Ciba or its
subsidiaries in principal amount equal to $100,000,000 LESS such third party
indebtedness with the following terms: (i) the principal and accrued interest
will be due and payable on the fifth anniversary of the Closing Date; (ii)
interest will accrue and not be payable until such fifth anniversary, at which
time it will be payable in full; and (iii) the interest rate will be the
applicable cost of funds of CCorp.
SECTION 5.16. RESEARCH AND DEVELOPMENT AGREEMENT. As soon as
practicable after the Closing, Ciba and the Company shall negotiate in good
faith the terms of a Research and Development Agreement, which shall contain the
terms set forth on Exhibit B hereto as well as such other terms as may be
reasonably agreed by Ciba and the Company.
SECTION 5.17. EXCESS PARACHUTE PAYMENTS. If any payments made under
Section 5.14, alone or when aggregated with other compensation payable to any
individual,
<PAGE>
66
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code and/or would subject such individual to a tax under Section 4999 of the
Code (or successor or similar provisions, to the extent identified in Schedule
3.01(j) the Company may pay such individual such additional amount or amounts as
shall be necessary to assure that, on any date, the net after-tax amount
realized by Executive from the compensation paid hereunder plus such additional
amount shall equal the net-after tax amount that such individual would have
realized from the compensation payable hereunder if such additional tax were not
imposed; PROVIDED that, notwithstanding anything in Section 5.14 to the
contrary, neither Ciba nor any of its subsidiaries shall have any obligation to
reimburse the Company for any such payments.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.01. TERMINATION. (a) Anything contained herein to the
contrary notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(i) by mutual written consent of Ciba and the Company;
(ii) by either Ciba or the Company if (x) as the result of the
failure of any of the conditions set forth in paragraphs (a) through (h) of
Exhibit A to this Agreement, Holdings shall have failed to commence the
Offer in the time required by this Agreement or (y) as a result of the
failure of any of the conditions set forth in Exhibit A to this Agreement
the Offer shall have terminated or expired in accordance with its terms
without Holdings having accepted for payment any shares of Common Stock
pursuant to the Offer;
(iii) by Ciba if any of the conditions set forth in Section 2.01
shall have been incapable of fulfillment, and shall not have been waived by
Ciba;
(iv) by the Company if any of the conditions set forth in Section
2.02 shall have become incapable of
<PAGE>
67
fulfillment, and shall not have been waived by the Company; or
(v) by the Company in accordance with the provisions of Section
4.02(b).
PROVIDED, HOWEVER, that the party seeking termination pursuant to clause (ii),
(iii) or (iv) is not in breach of any of its representations, warranties,
covenants or agreements contained in this Agreement.
(b) In the event of termination by the Company or Ciba pursuant to
this Section 6.01, written notice thereof shall forthwith be given to the other
and the transactions contemplated by this Agreement shall be terminated, without
further action by either party.
SECTION 6.02. EFFECT OF TERMINATION. In the event of termination of
this Agreement by either the Company or Ciba as provided in Section 6.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Ciba, CCorp, Holdings or the Company, other than
the provisions of Section 3.01(n), Section 3.02(b), Sections 4.02 (c) and (d),
the last two sentences of Section 5.02, Section 5.05, this Section 6.02 and
Article VII and except to the extent that such termination results from the
wilful and material breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement or any of the Ancillary
Agreements.
SECTION 6.03. AMENDMENT. This Agreement may be amended by the parties
at any time before or after any required approval of matters, if any, presented
in connection with this Agreement by the stockholders of the Company; PROVIDED,
HOWEVER, that, after any such approval, there shall be made no amendment that by
law requires further approval by such stockholders without the further approval
of such stockholders. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
SECTION 6.04. EXTENSION; WAIVER. At any time prior to the Closing, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or
<PAGE>
68
(c) subject to the proviso of Section 6.03, waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 6.05. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR
WAIVER. A termination of this Agreement pursuant to Section 6.02, an amendment
of this Agreement pursuant to Section 6.03 or an extension or waiver pursuant to
Section 6.04 shall, in order to be effective, require in the case of Ciba,
CCorp, Holdings or the Company, action by its Board of Directors or the duly
authorized designee of its Board of Directors.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing except as and to
the extent otherwise expressly provided in Section 3.05. This Section 7.01 shall
not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Closing.
SECTION 7.02. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile transmission, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as
<PAGE>
69
shall be specified in a notice given in accordance with this Section 7.02):
If to Ciba, to:
CIBA-GEIGY LIMITED
CH 4002
Basel, Switzerland
Attention: Chief Legal Officer
Facsimile: 41-61-696-5419
with a copy to:
Attention: Herbert Art
Facsimile: 41-61-696-5419
If to the Company, to:
CHIRON CORPORATION
4560 Horton Street
Emeryville, CA 94563
Attention: President
Facsimile: (510) 655-3282
with a copy to:
Attention: General Counsel
Facsimile: (510) 654-5360
If to CCorp or Holdings, to
CIBA-GEIGY CORPORATION
444 Saw Mill River Road
Ardsley, NY 10502
Attention: Mr. Stan Sherman
Facsimile: (914) 479-2844
with a copy to:
Attention: John J. McGraw, Esq.
Facsimile: (914) 479-2111
SECTION 7.03. DEFINITIONS. For purposes of this Agreement:
An "affiliate" of any person means another person that directly or
indirectly, through one or more
<PAGE>
70
intermediaries, controls, is controlled by, or is under common control with,
such first person.
"Ancillary Agreements" means the Governance Agreement dated as of the
date hereof (the "Governance Agreement") among the parties hereto, the Market
Price Option Agreement dated as of the date hereof among the parties hereto, the
Subscription Agreement dated as of the date hereof, the Registration Rights
Agreement dated as of the date hereof between Holdings and the Company and the
Cooperation and Collaboration Agreement dated as of the date hereof between Ciba
and the Company.
"material adverse change" or "material adverse effect" means, when
used in connection with the Company, Ciba or Diagnostics, any change or effect
(or any development that, insofar as can reasonably be foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
properties, assets, condition (financial or otherwise), results of operations or
prospects of the Company and each of its subsidiaries, Ciba and its
subsidiaries, or Diagnostics and its subsidiaries, as applicable.
"person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
A "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
SECTION 7.04. INTERPRETATION. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". For purposes of this Agreement, the knowledge of
any party shall mean the
<PAGE>
71
knowledge of such party and its subsidiaries after due inquiry.
SECTION 7.05. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 7.06. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement and the Ancillary Agreements (a) constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement and the
Ancillary Agreements and (b) are not intended to confer upon any person other
than the parties and their permitted successors and assigns any rights or
remedies.
SECTION 7.07. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 7.08. ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned or
transferred, in whole or in part (including by operation of law in connection
with a merger, or sale of substantially all the assets, of the Company, Ciba,
CCorp or Holdings or otherwise), by any of the parties without the prior written
consent of the other parties, except that each of Ciba, CCorp and Holdings may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct or indirect wholly owned
subsidiary of Ciba and, in the case of CCorp and Holdings, to Ciba, but no such
assignment shall relieve either of Ciba, CCorp or Holdings of any of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns. Any attempted
assignment in violation of this Section 7.08 shall be void.
SECTION 7.09. ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or any of
the Ancillary Agreements were not performed in accordance with their
<PAGE>
72
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and the Ancillary Agreements and to enforce specifically the
terms and provisions of this Agreement and the Ancillary Agreements in any
Federal or state court located in the State of Delaware, this being in addition
to any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of any Federal or state court located in the State of Delaware in
the event any dispute arises out of this Agreement, any of the Ancillary
Agreements, or any of the transactions contemplated by this Agreement or any of
the Ancillary Agreements, (b) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court and (c) agrees that it will not bring any action relating to this
Agreement, any of the Ancillary Agreements or any of the transactions
contemplated by this Agreement or any of the Ancillary Agreements in any court
other than a Federal or state court sitting in the State of Delaware.
<PAGE>
73
IN WITNESS WHEREOF, Ciba, CCorp, Holdings and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
CIBA-GEIGY LIMITED,
by /s/ Alex Krauer
-----------------------------
Name:
Title:
/s/ John Cheesmond
-----------------------------
Name:
Title:
CIBA-GEIGY CORPORATION,
by /s/ McGraw
-----------------------------
Name:
Title:
CIBA BIOTECH PARTNERSHIP, INC.,
by /s/ McGraw
-----------------------------
Name:
Title:
CHIRON CORPORATION,
by /s/ William J. Rutter
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement,
Holdings shall not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) under the
Exchange Act (relating to Holdings' obligation to pay for or return tendered
shares of Common Stock after the termination or withdrawal of the Offer), to pay
for any shares of Common Stock tendered pursuant to the offer unless (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the offer 11,860,467 shares of Common Stock (the "Minimum Tender Condition");
(ii) any waiting period under the HSR Act and any foreign competition and
antitrust statutes and regulations applicable to the purchase of shares of
Common Stock pursuant to the Offer and to the sale and purchase of the Ciba
Biocine Business and the Diagnostics Shares and the related issuance of New
Shares shall have expired or been terminated (the "HSR Condition"); (iii) the
transactions contemplated by this Agreement shall have been jointly notified by
the parties hereto to the appropriate Governmental Entity in accordance with the
Exon-Florio Amendment and (A) an investigation shall not have been commenced
within 30 days of such notification or (B) if an investigation shall have been
so commenced, an announcement on the part of the President of the United States
to take remedial action pursuant to the Exon-Florio Amendment with respect
thereto shall have been made within 60 days after such commencement; (iv) the
conditions to the obligations of Ciba, C Corp, Holdings and the Company to
consummate the transactions contemplated to occur at the Diagnostics Closing
(other than the conditions relating to the acceptance for payment of shares of
Common Stock pursuant to the Offer) shall have been satisfied or waived; and (v)
the Company shall have executed and delivered each Ancillary Agreement and each
Ancillary Agreement shall be in full force and effect. Furthermore,
notwithstanding any other term of the Offer or this Agreement, Holdings shall
not be required to accept for payment or, subject as aforesaid, to pay for any
shares of Common Stock not theretofore accepted for payment or paid for, and may
terminate or amend the Offer, with the consent of the Company or if, at any time
on or after the date of this
<PAGE>
2
Agreement and before the acceptance of such shares for payment or the payment
therefor, any of the following conditions exists:
(a) there shall be threatened or pending by any Governmental Entity
any suit, action or proceeding, which has a reasonable likelihood of
success, or there shall be pending by any other person any suit, action or
proceeding, which has a substantial likelihood of success, (i) challenging
the acquisition by Ciba or Holdings of any shares of Common Stock, seeking
to restrain or prohibit the making or consummation of the Offer or the
Share Issuances as contemplated by this Agreement of the performance of any
of the other transactions contemplated by this Agreement, or seeking to
obtain from the Company, Ciba, CCorp or Holdings any damages that are
material in relation to the Company and its subsidiaries taken as whole,
(ii) seeking to prohibit or limit the ownership or operation by the
Company, Ciba or any of their respective subsidiaries of a material portion
of the business or assets of the Company and its subsidiaries, taken as a
whole, or Ciba and its subsidiaries, taken as a whole, or to compel the
Company, Ciba or CCorp to dispose of or hold separate any material portion
of the business or assets of the Company and its subsidiaries, taken as a
whole or Ciba and its subsidiaries, taken as a whole, as a result of the
Offer or any of the other transactions contemplated by this Agreement and
the Ancillary Agreements, (iii) seeking to impose limitations on the
ability of Ciba, CCorp or Holdings to acquire or hold, or exercise full
rights of ownership of, any shares of Common Stock accepted for payment
pursuant to the Offer or any New Shares including, without limitation, the
right to vote such Common Stock and New Shares on all matters properly
presented to the stockholders of the Company, (iv) seeking to prohibit Ciba
or any of its subsidiaries from exercising any of their respective material
rights under this Agreement or any Ancillary Agreement;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Share Issuances, or any other action shall be taken by any
Governmental Entity or court, other than the application to the Offer or
the Share Issuances of applicable waiting periods under the HSR Act, that
is
<PAGE>
3
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a)
above;
(c) there shall have occurred any material adverse change in the
Company;
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities (excluding any coordinated
trading halt triggered solely as a result of a specified decrease in a
market index), (ii) any extraordinary change in the financial markets in
the United States or Switzerland, (iii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States or Switzerland, (iv) any limitation (whether or not mandatory) by
any Governmental Entity on, or other event that materially affects, the
extension of credit by banks or other lending institutions, (v) a
commencement of a war directly involving the armed forces of the United
States (other than in Haiti or the Middle East), or (vi) in case of any of
the foregoing existing on the date of this Agreement, material acceleration
or worsening thereof;
(e) (i) the Board of Directors of the Company shall have withdrawn or
modified in a manner adverse to Ciba or Holdings its approval or
recommendation of the Offer or the other transactions contemplated by this
Agreement or the Ancillary Agreements, or approved or recommended any
takeover proposal or approved the solicitation of additional takeover
proposals, (ii) the Company shall have entered into any agreement with
respect to any superior proposal in accordance with Section 4.02(b) of this
Agreement, (iii) six business days shall have elapsed following Ciba's
receipt of a Notice of Superior Proposal from the Company without the Board
of Directors of the Company having reaffirmed its recommendation of the
Offer and the Share Issuances, as the terms thereof may be modified or
improved by Ciba in accordance with the terms of this Agreement or (iv) the
Board of Directors of the Company or any committee thereof shall have
resolved to take any of the foregoing actions referred to in (i) or (ii)
above;
(f) any of the representations and warranties of the Company set
forth in this Agreement that are
<PAGE>
4
qualified as to materiality shall not be true and correct and any such
representations and warranties that are not so qualified shall not be true
and correct in any material respect, in each case as of the date of this
Agreement and as of the Expiration Date as though made on and as of the
Expiration Date (or any other date as of which such representations and
warranties expressly speak), and Ciba shall have received a certificate to
such effect dated the Closing Date and executed by a duly authorized
officer of the Company;
(g) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under this
Agreement; or
(h) this Agreement shall have terminated in accordance with its
terms;
which, in the reasonable good faith judgment of Ciba or Holdings, in any such
case, and regardless of the circumstances giving rise to any such condition
(other than any action or inaction by Ciba or any of its subsidiaries which
constitutes a breach of this Agreement), makes it inadvisable to proceed with
such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Ciba and Holdings
and may be asserted by Ciba or Holdings regardless of the circumstances giving
rise to such condition or may be waived by Ciba or Holdings in whole or in part
at any time and form time to time in their sole discretion. The failure by Ciba,
Holdings or any other affiliate of Ciba at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts and circumstances and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
<PAGE>
EXHIBIT B
RESEARCH AND DEVELOPMENT SUPPORT
TERM SHEET
The material terms of the Research and Development Support Agreement shall be as
follows:
PRESENTATION OF PROPOSED R&D PROGRAMS.
During the period commencing on January 1, 1995 (the "Effective Date") and
ending on December 31, 1999 (such period, the "Funding Period"), Chiron shall be
entitled to present from time to time proposals for research and development
programs ("Proposed R&D Programs") that Chiron shall desire CGL to fund or
partially fund. Such Proposed R&D Programs shall include funding of vaccine
programs that previously had been funded through The Biocine Company and taken
together shall constitute the research and development program (the "R&D
Venture") of the parties under the Research and Development Support Agreement.
No limitation shall be placed upon the number of Proposed R&D Programs that may
be presented by Chiron to CGL during the Funding Period and included in the R&D
Venture.
FUNDING OBLIGATION.
Subject to the limitations set forth below, CGL shall fund its share of all
Development Costs of the R&D Venture, which shall be 100%, or such lesser
amount as the parties may agree, of the projects included in the R&D Venture
(but not in excess of the maximum funding provided for hereunder).
"Development Costs" for any Proposed R&D Program, shall mean the fully
burdened, fairly allocated internal costs of Chiron, on a consolidated basis,
including reasonable and customary allocations of indirect and overhead
expense and charges in the nature of depreciation and amortization of
capitalized cost, and out-of-pocket expenses, to the extent any of the
foregoing were or are to be incurred in connection with activities performed
pursuant to a Proposed R&D Program.
FUNDING OBLIGATION LIMITATIONS.
The obligation of CGL to fund the R&D Venture shall be subject to the following
limitations:
(a) In no event shall CGL be obligated to provide to Chiron in
any calendar year during the Funding Period funding for the R&D Venture in
an amount in excess of U.S. $75,000,000 in 1995 and for calendar years
thereafter, in equal
<PAGE>
annual portions of the remaining unexpended aggregate amount under (b) below;
and
(b) In no event shall the Aggregate Amount of Funding (as
hereinafter defined) provided by CGL to Chiron for the R&D Venture at any
time during the Funding Period exceed U.S. $250,000,000; provided, however,
that such amount may be increased, at Chiron's request, to $300,000,000 in
consideration of a reduction in the amount of the committed debt facility
under the Investment Agreement at the rate of $1.00 of increased research
and development funding for each $1.50 reduction of the debt facility.
"Aggregate Amount of Funding" shall mean, at any time, the aggregate amount of
funding provided to Chiron by CGL reduced by the aggregate amount of any
payments to or profits paid or earned by CGL in connection with any product(s)
developed in any Proposed R&D Program.
PAYMENT OF FUNDING OBLIGATION.
Based upon the Annual Budgets prepared by Chiron (which budgets shall be subject
to periodic review and adjustment by Chiron in consultation with CGL) for the
R&D Venture, CGL shall make monthly payments, payable in U.S. dollars, on the
first day of each month for its portion of all Development Costs estimated to be
incurred by Chiron for the ensuing month. Within 30 days after the end of each
calendar quarter, Chiron shall prepare and deliver to CGL a summary of the
actual Development Costs incurred by Chiron during the preceding calendar
quarter and a reconciliation with the estimated monthly payments by CGL during
the calendar quarter. Overpayments of Development Costs shall be applied by CGL
against subsequent monthly payments of estimated Development Costs due to
Chiron. CGL shall make an appropriate payment to Chiron of underpayments within
30 days of receipt of Chiron's summary of costs.
ACTIVITIES OF CHIRON.
Chiron agrees to spend the sums made available to it by CGL and its portion of
Development Costs to conduct the R&D Venture.
INVENTIONS.
Chiron will own any new inventions developed solely by it or its employees,
agents or assignors in connection with the R&D Venture.
2.
<PAGE>
MARKET OPPORTUNITIES.
In consideration of the funding provided by CGL for the R&D Venture and subject
to Chiron's buy-out right described below, Chiron shall offer CGL the
opportunity to share in the market opportunities with respect to the product(s)
resulting from the R&D Venture. The definitive Research and Development Support
Agreement shall set forth various structures that Chiron may offer CGL. The
parties agree that the final terms selected for the R&D Venture shall be
structured to assure that Chiron will be entitled to recognize the funding
payments made by CGL as revenue in Chiron's profit and loss statement consistent
with U.S. generally accepted accounting principles. The structures that Chiron
may propose include:
(a) SHARING OF PRE-TAX PROFITS. Chiron may offer CGL the right
to receive a stated percentage of pre-tax profits and losses from the sale
of all product(s) developed, manufactured and marketed by Chiron pursuant
to the R&D Venture in return for an upfront cash payment to Chiron in an
amount to be mutually agreed between the parties at the commencement of
funding by CGL of the program (such stated percentage, the "Base
Percentage"). Funding payments made by CGL to Chiron with respect to the
R&D Venture would increase the Base Percentage at a rate mutually agreed to
by the parties. The Base Percentage and rate of increase of such percentage
will be intended to represent a commercially reasonable allocation of the
profits based on each party's contribution to the R&D Venture. Profits
would be calculated by deducting from net sales the fully burdened cost of
manufacturing (including depreciation, amortization and a fair allocation
for idle plant), royalties to third parties and/or one of the parties,
marketing, distribution and promotion costs.
(b) GRANT OF ROYALTY INTEREST. Chiron may grant to CGL the right
to receive a royalty on net sales of product(s) developed and sold by
Chiron pursuant to the R&D Venture. The royalty rate shall be as mutually
agreed to by the parties and shall represent a commercially reasonable
rate.
(c) GRANT OF MARKETING RIGHTS. Chiron may grant to CGL the
right to participate in the marketing and/or selling of product(s) in
selected markets. In such event, Chiron and CGL would agree upon a supply
arrangement under which Chiron would manufacture products for sale through
CGL under commercially reasonable terms.
BUYOUT RIGHT.
Chiron shall have the right with respect to the R&D Venture to repurchase all of
the rights granted to CGL upon tender by Chiron to CGL of payment in the amount
of the Buyout Amount (as hereinafter defined) in effect at the time of such
payment for the R&D
3.
<PAGE>
Venture; provided that such right shall expire if such tender is not made prior
to January 1, 2002. The "Buyout Amount" shall equal an amount equal to (i) the
sum of all funding payments made by CGL to Chiron prior to such time for the R&D
Venture, PLUS (ii) a reasonable return on such payments which shall be agreed to
by the parties upon commencement of the R&D Venture and which shall represent
the time value of money, LESS (iii) the aggregate amount of all payments or
profits received by CGL in connection with the R&D Venture, LESS (iv) a
reasonable return on such payments which shall represent the time value of
money.
Chiron shall be entitled to make the payment of the Buyout Amount in the form of
cash or Common Stock, or a combination of the two. If Chiron shall elect to
employ Common Stock for purposes of making such payment, such Common Stock shall
be valued at its Fair Market Value as of the date immediately preceding the date
on which such payment shall be made.
NEGOTIATION OF THE DEFINITIVE RESEARCH AND DEVELOPMENT AGREEMENT.
The obligations of each party are subject to the negotiation and execution of a
definitive agreement, which shall be mutually satisfactory to each of the
parties.
4.
<PAGE>
Exhibit 10.702
EXECUTION COPY
GOVERNANCE AGREEMENT dated as of November 20, 1994
(this "Agreement"), among CIBA-GEIGY LIMITED, a Swiss
corporation ("Ciba"), CIBA-GEIGY CORPORATION, a New York
Corporation that is an indirect wholly owned subsidiary of
Ciba ("C Corp"), and CHIRON CORPORATION, a Delaware
corporation (the "Company").
WHEREAS Ciba and the Company have determined to enter into a
strategic partnership in the area of biotechnology under which the two
companies will enter into various collaborations, the Company will
remain an autonomous and entrepreneurial business and will continue to
make acquisitions of businesses and technologies within its strategic
mission and Ciba will make substantial investments in the Company so
as to enhance its capabilities for growth and strategic success;
WHEREAS Ciba, C Corp, CIBA Biotech Partnership, Inc., a Delaware
corporation ("Holdings"), and the Company have entered into the
Investment Agreement dated as of the date hereof (the "Investment
Agreement");
WHEREAS each of Ciba, C Corp, Holdings and the Company have each
determined to engage in the transactions contemplated by the
Investment Agreement pursuant to which transactions Ciba initially
will own a minority of the then outstanding shares of Common Stock of
the Company; and
WHEREAS Ciba, C Corp and the Company desire to establish in this
Agreement certain terms and conditions concerning the corporate
governance of the Company and certain terms and conditions concerning
the acquisition and disposition of securities of the Company by Ciba
and its Subsidiaries.
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein and for other good and valuable
consideration, the sufficiency and receipt of
<PAGE>
2
which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"ACQUISITION" means any acquisition of (i) any 10% or greater
voting interest in any Person, (ii) the business of any Person or
(iii) any assets of any Person comprising all or a Substantial Part of
either such Person or the Company, in each case whether such
acquisition be by merger, consolidation, the purchase of stock or
assets or otherwise, but shall not include (a) any such acquisition of
an equity interest in any Person primarily as part of the
establishment of a technology collaboration with such Person so long
as the value of the consideration for such equity is less than
$20,000,000 and is paid in cash or (b) any such acquisition which in
substance is the acquisition of intellectual property and not of a
business or any operating assets of a business, so long as the
consideration for such intellectual property does not include Equity
Securities.
"AFFILIATE" has the meaning assigned to such term in the
Investment Agreement.
"ANCILLARY AGREEMENTS" has the meaning assigned to such term in
the Investment Agreement.
"ASSOCIATE" has the same meaning as in Rule 12b-2 promulgated
under the Exchange Act.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company except where the context requires otherwise.
"BUYOUT TRANSACTION" means a tender offer, merger, sale of
substantially all of the Company's assets or similar transaction
involving Ciba or one of its Affiliates and the Company or the
Unaffiliated Equity Holders that (1) offers each Unaffiliated Equity
Holder the opportunity to dispose of all Equity Securities owned by
such stockholder or otherwise provides for the acquisition of all (but
not less than all) Equity Securities owned by such stockholder, in
each case for consideration reflecting such stockholder's
<PAGE>
3
proportionate share of the Third Party Sale Value Consideration and
(2) for each class of Equity Securities, provides the same
consideration for each security within such class.
"CCD" means Ciba Corning Diagnostics Corp., a Delaware
corporation.
"CIBA'S PERCENTAGE INTEREST" means the percentage of Voting
Power, determined on the basis of the number of shares of Voting Stock
actually outstanding, that is controlled directly or indirectly by
Ciba or any Subsidiary of Ciba (other than the Company and its
Subsidiaries), including by beneficial ownership.
"CLOSING" means the date shares of Common Stock are accepted for
payment pursuant to the Offer.
"COMMON STOCK" means the Common Stock of the Company, and any
other capital stock of the Company that does not have a fixed,
floating or formulaic right to the payment of dividends or of a
preferential amount upon liquidation.
"COMPANY" has the meaning set forth above.
"DIRECTOR" means a member of the Board of Directors.
"DISCRIMINATORY TRANSACTION" means any transaction or other
corporate action (other than those imposed pursuant to the express
terms of this Agreement and other than those imposed, without the
happening of a contingency, on each other stockholder) which would
(x) impose limitations on the legal rights of Ciba or any of its
Affiliates or Associates as a stockholder of the Company,
including, without limitation, any action which would impose
restrictions based upon the size of security holding, nationality
of a securityholder, the business in which a securityholder is
engaged or other considerations applicable to Ciba and not to
stockholders generally, (y) deny any benefit to Ciba or any of its
Affiliates or Associates, proportionately as a holder of any class
of Voting Stock, that is made available to other holders of any
class of Voting Stock or (z) otherwise materially adversely
discriminate against Ciba, its Affiliates or Associates as
stockholders of the Company.
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4
"EFFECTIVENESS OF THE AGREEMENT" means the Closing.
"EQUITY SECURITY" means (i) any Common Stock or other Voting
Stock, (ii) any securities of the Company convertible into or
exchangeable for Common Stock or other Voting Stock or (iii) any
options, rights or warrants (or any similar securities) issued by the
Company to acquire Common Stock or other Voting Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder, as amended.
"EXECUTIVE OFFICER" has the meaning set forth in Section 2.12(c).
"EXTRAORDINARY DIVIDEND" means (i) the first dividend paid by the
Company with respect to its Common Stock (other than pro rata
dividends paid solely in additional shares of Common Stock), (ii) if
the Company has previously paid a cash dividend with respect to its
Common Stock, the payment by the Company of a dividend with respect to
its Common Stock (other than pro rata dividends paid solely in
additional shares of Common Stock) if the per share amount of such
dividend, when taken together with the aggregate per share amount of
cash dividends paid by the Company within the preceding 12 months,
exceeds 5% of the Company's net earnings per share (determined in
accordance with GAAP) for such 12 month period or (iii) the payment by
the Company of a dividend with respect to any capital stock other than
Common Stock unless such dividend is required by the instrument
creating such capital stock.
"FAIR MARKET VALUE" means, as of any date of determination, (i)
in the case of a security, the average of the closing sale prices of
such security during the 10-day period immediately preceding such date
of determination on the principal U.S. or foreign securities exchange
on which such security is listed or, if such security is not listed or
primarily traded on any such exchange, the average of the closing sale
prices or the closing bid quotations of such security during the
10-day period preceding such date of determination on the Nasdaq
National Market or any comparable system then in use or, if no such
quotations are available, the fair market value of such security as of
such date of determination as determined in good faith by a majority
of the Independent Directors (or, in the case of
<PAGE>
5
any securities payable as part of the Third Party Sale Value
Consideration, by the arbitrator(s) pursuant to Section 4.01(d) to the
extent applicable); and (ii) in the case of property other than cash
or a security, the fair market value of such property on such date of
determination as determined in good faith by a majority of Independent
Directors.
"FIRST STANDSTILL PERIOD" means the period beginning at the
Effectiveness of this Agreement and terminating at the later to occur
of (i) January 15, 2000, and (ii) the fifth anniversary of the
Closing.
"GAAP" means U.S. generally accepted accounting principles.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of
such Person under conditional sale or other title retention agreements
relating to property or assets purchased by such Person, (c) all
obligations of such Person issued or assumed as the deferred purchase
price of property or services, (d) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any lien on property
owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (e) all guarantees by such Person
of Indebtedness of others, (f) all obligations of such Person in
respect to interest rate protection agreements, foreign currency
exchange agreements or other interest or exchange rate hedging
arrangements, in each case other than those entered into primarily as
a hedge, and (g) all capital lease obligations of such Person.
"INDEPENDENT DIRECTOR" means a Director of the Company (i) who is
not and has never been an officer or employee of the Company, any
Affiliate or Associate of the Company or of an entity that derived 5%
or more of its revenues or earnings in its most recent fiscal year
from transactions involving the Company or any Affiliate or Associate
of the Company, (ii) who is not and has never been an officer,
employee or director of Ciba (except for Mr. Henri Schramek, who shall
be an Independent Director), any Affiliate or Associate of Ciba or of
an entity that derived more than 5% of its revenues or earnings in its
most recent fiscal year from transactions involving Ciba or any
Affiliate or Associate of Ciba and (iii) who has no
<PAGE>
6
affiliation, compensation, consulting or contracting arrangement with
the Company, Ciba or their respective Affiliates or any other entity
such that a reasonable person would regard such Director as likely to
be unduly influenced by management of the Company or Ciba,
respectively, but shall not include any Investor Director or
Management Director.
"INDEX DEBT" means the Company's senior, unsecured,
noncredit-enhanced long-term indebtedness for borrowed money.
"INVESTMENT AGREEMENT" has the meaning set forth above.
"INVESTMENT GRADE" means a rating of at least Baa3 by Moody's or
of at least BBB- by S&P. If the rating system of Moody's or S&P shall
change, or if either such rating agency shall cease to be in the
business of rating corporate debt obligations, the Company and Ciba
shall negotiate in good faith to amend the applicable reference to a
specific rating in this definition to reflect such changed rating
system or the nonavailability of ratings from such rating agency.
"INVESTOR DIRECTOR" means a Director who is designated for such
position by Ciba in accordance with Section 2.01.
"LEVEL I ACQUISITION" means any Acquisition by the Company or any
of its Subsidiaries for which the sole consideration given by the
Company and its Subsidiaries consists of cash and/or shares of
Specified Equity Securities having an aggregate Fair Market Value not
exceeding, when taken together with the Fair Market Value of the
consideration given by the Company and its Subsidiaries (such value
being determined as of the date of the giving of the relevant
consideration) for all other Acquisitions by them being consummated
simultaneously with such Acquisition or previously consummated during
the same fiscal year of the Company during which such Acquisition is
consummated, $125,000,000.
"LEVEL II ACQUISITION" means any Acquisition by the Company or
any of its Subsidiaries that is not a Level I Acquisition.
<PAGE>
7
"LEVEL I STOCK ISSUANCE" means (i) during the five year period
commencing with the Effectiveness of this Agreement, any Stock
Issuance providing gross proceeds not exceeding (A) when taken
together with the gross proceeds from all other Stock Issuances being
consummated simultaneously with such issuance or previously
consummated during such five year period (including Stock Issuances
pursuant to the Subscription Agreement), $700,000,000, or (B) when
taken together with the gross proceeds from all other Stock Issuances
being consummated simultaneously with such issuance or previously
consummated during such five year period (excluding Stock Issuances
pursuant to the Subscription Agreement), $400,000,000 and (ii) during
each subsequent five year period, any Stock Issuance providing gross
proceeds not exceeding (A) when taken together with the gross proceeds
from all other Stock Issuances being consummated simultaneously with
such issuance or previously consummated during such five year period
(including Stock Issuances pursuant to the Subscription Agreement),
the aggregate of (1) $400,000,000 plus (2) if positive, the
Subscription Amount (as defined in the Subscription Agreement) as of
the commencement of such period less $200,000,000 or (B) when taken
together with the gross proceeds from all other Stock Issuances being
consummated simultaneously with such issuance or previously
consummated during such five year period (excluding Stock Issuances
pursuant to the Subscription Agreement), $400,000,000.
"LEVEL II STOCK ISSUANCE" means any Stock Issuance that is not a
Level I Stock Issuance.
"MANAGEMENT DIRECTOR" means a Director who is also an employee of
the Company or any other Director designated as such by the Nominating
Committee in accordance with Section 2.01.
"MARKET PURCHASE" means an acquisition of Equity Securities that
is within the definition of "Rule 10b-18 Purchase" under Rule 10b-18
under the Exchange Act as in effect on the date hereof that satisfies
the conditions of paragraph (b) of Rule 10b-18.
"MEASUREMENT STANDARDS" means the measurement standards set and
approved pursuant to Section 2.12.
"MOODY'S" means Moody's Investor Service, Inc.
<PAGE>
8
"NEW SECURITY" means any Equity Security issued by the Company
after the Closing; PROVIDED that "New Security" shall not include (i)
any securities issuable upon conversion of any convertible Equity
Security, (ii) any securities issuable upon exercise of any option,
warrant or other similar Equity Security or (iii) any securities
issuable in connection with any stock split, stock dividend or
recapitalization of the Company where such securities are issued to
all stockholders of the Company on a proportionate basis.
"NOMINATING COMMITTEE" shall mean the Nominating Committee of the
Board of Directors as described in Section 2.03(b)(ii).
"OFFER" has the meaning assigned to such term in the Investment
Agreement.
"OPERATING PLAN" means an operating plan of the Company and its
Subsidiaries for any fiscal year and will include, at a minimum, an
operating budget, a research and development budget, a capital
expenditures budget, a financing plan and financial and operating
performance goals for the Company (including sales and net profits and
any appropriate qualitative objectives).
"PERSON" means an individual, a partnership, a joint venture, a
corporation, a trust, an incorporated or unincorporated organization,
a government or any department or agency thereof.
"PRO RATA SHARE" means the fraction of an entire issuance of New
Securities, the numerator of which shall be the number of shares of
Common Stock owned by Ciba and its Affiliates (other than the Company
and its Subsidiaries) immediately prior to such issuance of such New
Securities and the denominator of which shall be the aggregate number
of shares of Common Stock outstanding immediately prior to such
issuance of such New Securities.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof, by and among Ciba, C Corp,
Holdings and the Company.
"SEC" means the Securities and Exchange Commission.
<PAGE>
9
"SECOND STANDSTILL PERIOD" means the period commencing at the end
of the First Standstill Period and terminating at the date that Ciba
and its Affiliates become the beneficial owners of all outstanding
shares of Equity Securities.
"SECTION 16 OFFICERS" has the meaning assigned to such term in
Section 2.03(b)(iv).
"SECURITIES ACT" means the Securities Act of 1933 and the rules
and regulations promulgated thereunder, as amended.
"SIGNIFICANT SUBSIDIARY" has the meaning assigned to such term in
the Investment Agreement.
"S&P" means Standard & Poor's Corporation.
"SPECIFIED EQUITY SECURITIES" means (i) any Common Stock, (ii)
any nonvoting preferred stock (or any convertible preferred stock
having voting rights on an as-converted basis) of the Company having a
fixed, floating or formulaic dividend rate and a fixed liquidation
preference, that does not participate in the financial results of the
Company or any of its Subsidiaries or other business operations and
the value of which is not derived from any other security or business
operation and (iii) any debt securities of the Company convertible
into any of the foregoing.
"STANDSTILL PERIODS" means the First Standstill Period and the
Second Standstill Period.
"STOCK ISSUANCE" means any issuance of any Equity Securities or
other capital stock (including any options, warrants or other rights
with respect thereto) of the Company or any of its Subsidiaries,
except (i) to a wholly owned Subsidiary of the Company or to the
Company, as the case may be, (ii) as contemplated by the exception set
forth in Section 2.04(b)(ii), and (iii) issuances of Specified Equity
Securities in connection with (A) any Level I Acquisition and (B) to
the extent approved in accordance with Section 2.04, any Level II
Acquisition.
"STRATEGIC PLAN" means the strategic plan of the Company and its
Subsidiaries which sets forth the strategic direction for the Company
and its Subsidiaries and their businesses (by strategic business
units) for an open long
<PAGE>
10
term horizon and for a period of three fiscal years in quantitative
terms. While the specific items addressed in the Strategic Plan will
depend upon the circumstances at the time of preparation, the parties
expect the first Strategic Plan prepared after the Closing will be
based generally on the items set forth in Annex A.
"STRATEGIC PLANNING COMMITTEE" means the Strategic Planning
Committee of the Board of Directors as described in Section 2.03(b)
(iii).
"STRATEGIC REVIEW" means a review and process that determines
whether the Strategic Plan is still valid, reviews progress to date,
updates key elements of the Strategic Plan, if deemed necessary, and
proposes modifications in objectives and strategies if deemed
necessary. It includes a review of (i) whether assumptions (including
as to market factors, competition, regulation, patents, pipeline,
etc.) are still valid; (ii) whether objectives are still realistic;
(iii) whether strategies and programs are on track; (iv) whether
resource assessments are still valid; and (v) an updated outlook
(financial and nonfinancial) if material deviations are expected.
"SUBSCRIPTION AGREEMENT" means the Subscription Agreement dated
as of the date hereof among Ciba, C Corp, Holdings and the Company.
"SUBSIDIARY" has the same meaning as in Rule 12b-2 promulgated
under the Exchange Act.
A "SUBSTANTIAL PART" of any Person means, as of any date of
determination, more than 10% of the Fair Market Value of the total
assets of such Person and its Subsidiaries as of the end of such
Person's most recent fiscal quarter ending prior to such date of
determination.
"SUPERMAJORITY VOTE OF THE BOARD" means approval by a majority of
the entire Board of Directors, which majority includes a majority of
all Investor Directors and a majority of all Independent Directors.
"THIRD PARTY SALE VALUE" means the value that an unaffiliated
third party would be expected (based on financial analyses generally
used by investment bankers in the preparation of a fairness opinion
for an acquisition transaction) to pay for all the Equity Securities
of the
<PAGE>
11
Company in an arm's-length transaction negotiated by a willing seller
and a willing buyer.
"THIRD PARTY SALE VALUE CONSIDERATION" means consideration at
least equal as of the relevant date to Third Party Sale Value.
"TOTAL VOTING POWER" means the aggregate number of votes entitled
to be voted in an election of Directors of the Company by all the
outstanding Voting Stock.
"UNAFFILIATED EQUITY HOLDERS" means holders of Equity Securities
other than Ciba or any of its Affiliates.
"VOTING POWER" means the ability to vote or to control, directly
or indirectly, by proxy or otherwise the vote of any Voting Stock.
"VOTING STOCK" means securities having the right to vote
generally in any election of Directors of the Company.
"13D GROUP" means any group of Persons formed for the purpose of
acquiring, holding, voting or disposing of Voting Stock which would be
required under Section 13(d) of the Exchange Act, and the rules and
regulations thereunder (as in effect, and based on legal
interpretations thereof existing, on the date hereof), to file a
statement on Schedule 13D with the SEC as a "person" within the
meaning of Section 13(d)(3) of the Exchange Act if such group
beneficially owned Voting Stock representing more than 5% of any class
of Voting Stock then outstanding.
SECTION 1.02. INTERPRETATION. The rules of interpretation set
forth in Section 7.04 of the Investment Agreement shall apply to this
Agreement, and the provisions thereof shall be deemed to be
incorporated by reference herein.
ARTICLE II
CORPORATE GOVERNANCE
SECTION 2.01. COMPOSITION OF THE BOARD OF DIRECTORS. Subject to
this Article II, the fundamental policies and strategic direction of
the Company shall be determined by its Board of Directors as provided
in this
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12
Article II. The composition of the Board of Directors and manner of
selecting members thereof shall be as follows:
(a) At and after the Effectiveness of this Agreement, the Board
of Directors shall be comprised of 11 Directors. The number of such
Directors may be increased only in accordance with Sections 2.01(g)
and 2.04(a).
(b) Immediately following the Effectiveness of this Agreement,
the Company shall elect to its Board of Directors the three
individuals notified prior to the Closing by Ciba to the Company,
which individuals will include Dr. Alex Krauer (unless any such
individual is unable or unwilling to serve, in which event the Company
shall elect a substitute individual designated by Ciba prior to the
Closing), each of whom is designated as an Investor Director by Ciba.
The Company agrees to file with the SEC, and to transmit to all
holders of record of Common Stock and other Voting Stock, the
information referred to in Section 14(f) of the Exchange Act in
connection with such election as and to the extent required by such
Section 14(f). Each such individual (or if applicable such
individual's substitute) shall be assigned to the class of the Board
of Directors notified by Ciba to the Company prior to the Closing.
Following the Effectiveness of this Agreement, the current Directors
of the Company listed under the heading of "Management Directors" in
Schedule 2.01 shall be deemed and continue to be Management Directors
and the current Directors of the Company listed under the heading
"Independent Directors" in Schedule 2.01 shall be deemed and continue
to be Independent Directors, in each case until the expiration of the
term of their respective elections (or any earlier termination,
resignation or removal).
(c) Except as otherwise provided herein, at all times from and
after the Effectiveness of this Agreement, the Directors shall be
nominated as follows (it being understood that such nomination shall
include any nomination of any incumbent Director for reelection to the
Board of Directors):
(i) the Nominating Committee shall nominate three Management
Directors, two of whom shall be the two most senior executives of
the Company;
(ii) Ciba shall have the right to designate three Investor
Directors, each of whom shall be nominated by the Nominating
Committee; and
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13
(iii) the Nominating Committee shall nominate the remaining
Directors, each of whom (A) shall have an outstanding reputation
for personal integrity and distinguished achievement in areas
relevant to the Company (in applying the foregoing criteria the
Nominating Committee shall be guided by the quality of the
individuals currently serving as directors of the Company and
Ciba) and (B) shall be an Independent Director.
(d) Notwithstanding anything in the foregoing paragraph (c) to
the contrary, (i) at any time Ciba's Percentage Interest is less than
30% but at least 20%, the Directors shall be nominated as set forth in
such paragraph (c) except Ciba shall have the right to designate for
nomination two Investor Directors and (ii) at any time Ciba's
Percentage Interest shall be less than 20%, the Directors shall be
nominated as set forth in such paragraph (c) except Ciba shall have
the right to designate for nomination one Investor Director.
(e) In connection with each annual meeting of the stockholders
of the Company, Ciba shall have the right to designate for nomination
a number of nominees for Director that together with the persons
designated for nomination by Ciba who are Directors in the classes not
standing for election at such annual meeting equals the number of
Investor Directors that Ciba is entitled to designate for nomination
pursuant to this Section 2.01 as of the date of such annual meeting.
Each person so designated shall be included in management's slate of
nominees for such annual meeting.
(f) Ciba and the Nominating Committee, respectively, shall have
the right to designate any replacement for a Director designated for
nomination or nominated in accordance with this Section 2.01 by Ciba
or the Nominating Committee, respectively, upon the death,
resignation, retirement, disqualification or removal from office for
other cause of such Director. Such replacement for any Independent
Director shall also be an Independent Director conforming to the
standard set forth in clause (A) of Section 2.01(c)(iii). The Board of
Directors shall elect each person so designated.
(g) Without limiting the generality of Section 2.01(c), in the
event that at any time after the Effectiveness of this Agreement the
number of Investor
<PAGE>
14
Directors on the Board of Directors differs from the number that Ciba
has the right (and wishes) to designate pursuant to this Section 2.01,
(i) if the number of Investor Directors exceeds such number, Ciba
shall promptly take all appropriate action to cause to resign that
number of Investor Directors as is required to make the remaining
number of such Investor Directors conform to this Section 2.01 or (ii)
if the number of Investor Directors otherwise is less than such
number, the Company shall take all necessary action to create
sufficient vacancies on the Board of the Company to permit Ciba to
designate the full number of Investor Directors which it is entitled
(and wishes) to designate pursuant to this Section 2.01 (such action
to include expanding the size of the Board of Directors, seeking the
resignation or removal of Directors or, at the request of Ciba,
calling a special meeting of the shareholders of the Company for the
purpose of removing Directors to create such vacancies to the extent
permitted by applicable law). Upon the creation of any vacancy
pursuant to the preceding sentence Ciba, shall designate the person to
fill such vacancy in accordance with this Section 2.01 and the Board
of Directors shall elect each person so designated.
(h) Notwithstanding anything herein to the contrary, no
individual who is an officer, director, partner or principal
stockholder of any competitor of the Company or any of its
Subsidiaries (other than Ciba and its Affiliates) or any competitor of
Ciba or any of its Subsidiaries (other than the Company) shall serve
as a Director without the unanimous consent of the Nominating
Committee.
SECTION 2.02. SOLICITATION AND VOTING OF SHARES. (a) The Company
shall use its best efforts to solicit from the stockholders of the
Company eligible to vote for the election of Directors proxies in
favor of the nominees selected in accordance with Section 2.01.
(b) In any election of Directors or any meeting of the
stockholders of the Company called expressly for the removal of
Directors, so long as the Board of Directors includes (and will
include after any such removal) the number of Investor Directors
contemplated by Section 2.01, Ciba and its Affiliates shall be present
for purposes of establishing a quorum and shall vote all their shares
of Voting Stock (i) in favor of any nominee or Director selected in
accordance with Section 2.01, (ii) in favor of removal of any Director
as contemplated by Section 2.01(g)
<PAGE>
15
and (iii) otherwise against the removal of any Director designated in
accordance with Section 2.01. Subject to Section 2.08, in any other
matter submitted to a vote of the stockholders of the Company, Ciba
may vote any or all of its shares in its sole discretion unless such
matter was approved by Ciba or a majority of the Investor Directors in
accordance with Section 2.04 or 2.12, in which case Ciba and its
Affiliates shall cast all their votes in favor of such matter.
(c) Ciba agrees that it will, and will cause any of its
Subsidiaries (other than the Company and its Subsidiaries) to, take
all action as a stockholder of the Company or as is otherwise
reasonably within its control, as necessary to effect the provisions
of this Agreement.
SECTION 2.03. COMMITTEES. (a) Subject to the general oversight
and authority of the full Board of Directors, the Board of Directors
shall establish, empower and maintain the committees of the Board of
Directors contemplated by this Section 2.03.
(b) The following committees shall be established, empowered and
maintained by the Board of Directors at all times during the term of
this Agreement:
(i) an Audit Committee, consisting solely of Investor
Directors and Independent Directors and a majority of whose
members shall be Independent Directors;
(ii) a Nominating Committee, responsible, among other
things, for recommending the nomination of Directors, all
pursuant to Section 2.01, and comprised and conducting itself
as follows:
(A) until the fifth anniversary of the Effectiveness of
this Agreement and thereafter if Ciba's Percentage Interest
is less than 40%, the Nominating Committee shall be
comprised of two Independent Directors, one Management
Director and one Investor Director;
(B) on and after the fifth anniversary of the
Effectiveness of this Agreement, so long as Ciba's
Percentage Interest is at least 40%, the Nominating
Committee shall be composed of two
<PAGE>
16
Independent Directors, one Management Director and two Investor
Directors;
(C) a majority of the Independent Directors shall designate
the Independent Directors that serve on the Nominating Committee,
the Chief Executive Officer of the Company shall designate the
Management Director that serves on the Nominating Committee and a
majority of the Investor Directors shall designate the Investor
Directors that serve on the Nominating Committee;
(D) a quorum of the Nominating Committee required for any
action thereby shall require the attendance of each member
thereof who is an Independent Director or an Investor Director;
and
(E) the Nominating Committee shall act by majority vote of
the entire Nominating Committee; PROVIDED, HOWEVER, that (1) on
and after the fifth anniversary of the Effectiveness of this
Agreement, so long as Ciba's Percentage Interest is at least 40%,
the Management Director member of the Nominating Committee cannot
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, and (2) in addition on and after the
eleventh anniversary of the Effectiveness of this Agreement, so
long as Ciba's Percentage Interest is at least 49%, the Investor
Director members shall have a deciding vote (meaning that, with
respect to any motion before the committee, if the two Investor
Director members vote one way and the two Independent Director
members vote the other way, the vote of the Investor Directors
will control) 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;
(iii) a Strategic Planning Committee, coming into existence and
having the responsibilities as set forth in Section 2.12 and comprised
and conducting itself as follows:
(a) the Strategic Planning Committee shall be comprised of
the three Investor Directors, three Independent Directors (who
shall be designated by
<PAGE>
17
a majority of the Independent Directors) and one Management
Director (who shall be designated by a majority of the Management
Directors); and
(b) a quorum of the Strategic Planning Committee required
for any action thereby shall require the attendance of each
member thereof, and the Strategic Planning Committee shall act by
majority vote of the entire Strategic Planning Committee;
PROVIDED, HOWEVER, that the Management Director member of the
Strategic Planning Committee cannot 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.
(iv) a Compensation Committee, responsible, among other things,
for recommending to the Board of Directors, for approval by a majority
of the Board of Directors (subject to Sections 2.04 and 2.12), (a) the
adoption and amendment of all employee benefit plans and arrangements,
(b) the engagement of, terms of any employment agreements and
arrangements with and termination of all persons designated as by the
Company as "officers" for purposes of Section 16 of the Exchange Act
("Section 16 Officers"), (c) the policies, limitations and procedures
under which the Stock Option Plan Administration Committee shall
operate and (d) the granting under the Company's employee benefit
plans of stock options and other equity rights to Section 16 Officers,
and consisting solely of Investor Directors and Independent Directors
who constitute disinterested persons (as such term is defined in Rule
16b-3(d) under the Exchange Act) and a majority of whose members shall
be Independent Directors;
(v) a Stock Option Plan Administration Committee, responsible,
among other things, for (A) recommending to the Board of Directors,
for approval by a majority of the Board of Directors, subject to
Sections 2.04 and 2.12, the adoption and amendment of all stock option
plans of the Company and (B) the administration of such plans
(including, subject to Sections 2.04 and 2.12, the approval of all
grants under the Company's employee benefit plans of stock options and
other equity rights to all persons other than those persons for
whom such grants are required to be approved by the Compensation
Committee pursuant to paragraph (iv) above), and
<PAGE>
18
(unless the composition of the committee is otherwise changed in a
manner consistent with this Agreement by the Board of Directors)
consisting solely of two Management Directors; and
(vi) such other committees as the Board of Directors deems
necessary or desirable; PROVIDED that such committees are established
in compliance with the terms of this Agreement.
(c) Except as otherwise provided in this Agreement or as
agreed by a majority of the Investor Directors, the number of Investor
Directors on each committee of the Board of Directors shall be the same
proportion of the total membership of such committee as the number of
Investor Directors, as the case may be, is of the entire Board of
Directors.
(d) No action by any committee of the Board of Directors shall
be valid unless taken at a meeting for which adequate notice has been
duly given or waived by the members of such committee. Such notice shall
include a description of the general nature of the business to be
transacted at the meeting, and no other business may be transacted at
such meeting unless all members of the committee are present and consent
to the consideration of such other business. Any committee member unable
to participate in person at any meeting shall be given the opportunity
to participate by telephone. The Board of Directors or the remaining
committee members shall designate an Investor Director, Independent
Director or Management Director to replace any absent or disqualified
Investor Director member, Independent Director member or Management
Director member, respectively, of any committee. In the event that any
Investor Director or Independent Director ceases to serve on any
committee of the Board of Directors and, after a reasonable time, no
successor to such Director is designated in accordance with the terms
hereof to serve on such committee, the number of members of such
committee may be reduced if such reduction does not (and no such
reduction is intended to) result in a change of the relative authorities
within such committee among the Investor Directors (taken as a group),
the Independent Directors (taken as a group) and the Management
Director. Each of the committees established by the Board of Directors
pursuant to this Section 2.03 shall establish such other rules and
procedures for its operation and governance (consistent with the terms
of this Agreement) as
<PAGE>
19
it shall see fit and may seek such consultation and advice as to matters
within its purview as it shall require.
SECTION 2.04. APPROVAL REQUIRED FOR CERTAIN ACTIONS. (a) So long
as Ciba's Percentage Interest is at least 40%, the approval of Ciba shall
be required for the Company or any of its Subsidiaries to do or effect any
of the following:
(i) the entry by the Company or any of its Subsidiaries into
any Discriminatory Transaction;
(ii) a Level II Stock Issuance;
(iii) a reclassification, combination, split, subdivision or
redemption, purchase or other acquisition, directly or indirectly, of
any debt or equity securities or other capital stock of the Company;
(iv) any amendment to the Certificate of Incorporation of the
Company or, subject to Section 2.01, any change in the size or
composition of the Board of Directors or any committee thereof;
(v) any amendment to the By-laws of the Company; PROVIDED that
Ciba's approval to any such amendment voted on by the Board of
Directors and approved by a majority of Investor Directors will be
deemed to have been given unless prior to the Board of Directors' vote
on such amendment Ciba notifies the Company of its disapproval
thereof;
(vi) any incurrence, assumption or issuance by the Company or
any of its Subsidiaries of Indebtedness (other than any Indebtedness
of CCD assumed at the Closing and any refinancings thereof to the
extent such refinancings do not increase the aggregate outstanding
principal amount thereof) that, when aggregated with the principal
amount of all then outstanding Indebtedness of the Company and its
Subsidiaries incurred, assumed or issued after the date of this
Agreement (other than any Indebtedness of CCD assumed at the Closing
and any refinancings thereof to the extent such refinancings do not
increase the aggregate outstanding principal amount thereof), exceeds
$460,000,000 if such incurrence, assumption or issuance (A) might
reasonably be expected to result in the Index Debt being rated less
than
<PAGE>
20
Investment Grade by Moody's or S&P or (B) occurs at a time when the
Index Debt is rated less than Investment Grade by Moody's or S&P;
(vii) the adoption or implementation of any takeover defense
measures (except against Persons other than Ciba and its Affiliates),
including the institution, amendment or redemption by the Company or
any of its Subsidiaries of any stockholder rights plan or similar plan
or device, or any change of control matters (including change of
control provisions in future collaborations that could have a material
adverse effect on the value of Ciba's holdings in the Company if Ciba
were to increase its ownership interest in the Company);
(viii) any transaction involving or any action by the Company or
any Subsidiary (a) leading to a circumstance in which any Person or
13D Group (other than Ciba and/or its Affiliates) shall beneficially
own or control Equity Securities representing a percentage of Total
Voting Power, or any equity interest in the Company or its successor,
greater than 15% or (b) requiring the approval or participation of
holders of a majority of the Voting Stock or Equity Securities;
(ix) any Level II Acquisition;
(x) any sale, asset exchange, lease, exchange, mortgage,
pledge, transfer or other disposition by merger or otherwise by the
Company or any of its Subsidiaries (in one transaction or a series of
related transactions) of all of the business or assets of the Company
and its Subsidiaries taken as a whole or of any part thereof
constituting a Substantial Part of the Company;
(xi) any change in the Company's fiscal year;
(xii) any change in the strategic mission of the Company and its
Subsidiaries from that of being a technology-driven health care
company; or
(xiii) the dissolution of the Company or any Significant
Subsidiary thereof; the adoption of a plan of liquidation of the
Company or any Significant Subsidiary thereof; or any action by the
Company or any Significant Subsidiary thereof to commence any suit,
<PAGE>
21
case, proceeding or other action (A) under any existing or future law
of any jurisdiction relating to bankruptcy, insolvency, reorganization
or relief of debtors seeking to have an order for relief entered with
respect to the Company or any Significant Subsidiary thereof, or
seeking to adjudicate the Company or any Significant Subsidiary
thereof a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding up, liquidation, dissolution,
composition or other relief with respect to the Company or any
Significant Subsidiary thereof or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for the Company
or any Significant Subsidiary thereof, or for all or any Substantial
Part of the assets of the Company or any Significant Subsidiary
thereof, or making a general assignment for the benefit of the
creditors of the Company or any Significant Subsidiary thereof.
(b) So long as Ciba's Percentage Interest is at least 40%, the
approval of a majority of the Investor Directors shall be required for the
Board of Directors to approve or authorize, and for the Company or any of
its Subsidiaries to do, any of the following:
(i) the declaration or payment by the Company of any
Extraordinary Dividend;
(ii) the issuance of any Equity Securities or other capital stock
(or any options, warrants or rights with respect thereto) of the
Company or any of its Subsidiaries to any of their directors, officers
or other employees as compensation (pursuant to any plan or
otherwise), except the issuance of Common Stock or options for the
purchase thereof (A) pursuant to any employee compensation plan in
existence at the Closing as long as the number of shares issued or
issuable at any time pursuant to grants in any year (other than grants
described in the following clause (B) or (C)) (1) does not exceed the
lesser of 4% of the number of shares of Common Stock outstanding at
the beginning of such year and 1,750,000 and (2) are issued for a
price (or, in the case of options, having an exercise price) at least
equal to fair market value (as defined in such plan), (B) as
contemplated by Section 5.14(f) of the Investment Agreement or (C) to
officers or other employees of the CCD component of the Company's
diagnostics business during the three year period
<PAGE>
22
commencing with the Closing in amounts consistent with amounts granted
to comparable employees of the Company;
(iii) (A) during the five year period commencing with the
Closing, (1) any changes to any employment agreement (or related
arrangements) entered into between the Company and C. William Zadel as
contemplated by the Investment Agreement and (2) any disposition (in
one transaction or a series of related transactions) of all of the
business or assets of CCD or 25% or more thereof and (B) during the
one year period commencing with the Closing, any removal, termination
(including constructive termination) or replacement of him as chief
operating officer of the business of CCD (other than for cause);
(iv) any amendment to the By-laws of the Company;
(v) in connection with any Acquisition by the Company or any of
its Subsidiaries, the giving of any consideration by the Company or
any of its Subsidiaries other than cash, shares of Specified Equity
Securities or, to the extent any other required approval pursuant to
Section 2.04 has been obtained, any assets of the Company or any of
its Subsidiaries;
(vi) subject to any other approval required under this Section
2.04, the issuance of any security of the Company or any Subsidiary
other than Specified Equity Securities; or
(vii) the establishment of any committee of the Board of
Directors other than as provided in Section 2.03(b)(i) through (v).
(c) With respect to any Acquisitions or Stock Issuances
consummated by the Company or any of its Subsidiaries between the fifth and
tenth anniversaries of the Effectiveness of this Agreement (and for each
subsequent five year period), Ciba and the Company shall negotiate in good
faith prior to the beginning of such period regarding whether the
$125,000,000 limit in the definition of Level I Acquisition or the
$400,000,000 limits in the definition of Level I Stock Issuance should be
revised; PROVIDED that, absent any mutual written agreement among the
parties hereto, such limits shall continue unchanged during such periods.
<PAGE>
23
SECTION 2.05. MATERIAL TRANSACTIONS WITH CIBA. The Company shall
not enter into any contract, agreement or transaction, with Ciba or any of
its Affiliates after the Closing described in Item 404 of Regulation S-K
promulgated by the SEC unless a majority of the Independent Directors or
holders of a majority of the Voting Power of the Voting Stock which is held
by Unaffiliated Equity Holders approve such contract, agreement or
transaction; PROVIDED, HOWEVER, that the restrictions contained in this
Section 2.05 shall not apply to any contract, agreement or transaction that
is expressly contemplated by the Investment Agreement, this Agreement or
any other Ancillary Agreement.
SECTION 2.06. ENFORCEMENT OF THIS AGREEMENT. A majority of the
Independent Directors shall have full and complete authority on behalf of
the Company to enforce the terms of this Agreement.
SECTION 2.07. CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Company and Ciba shall take or cause to be taken all lawful action
necessary to ensure at all times that the Company's Certificate of
Incorporation and By-laws are not at any time inconsistent with the
provisions of this Agreement. Not later than the Effectiveness of this
Agreement, the Board of Directors shall amend the Company's By-laws to
reflect the provisions of Sections 2.04, 2.10, 2.11 and 2.12. At Ciba's
request the Board of Directors shall adopt (and if necessary submit and
recommend for approval by stockholders) other amendments to the Company's
Certificate of Incorporation or By-laws reasonably necessary to implement
the provisions of this Agreement.
SECTION 2.08. ADVISORS. The Independent Directors shall be
entitled to retain, at the cost and expense of the Company, the services of
an investment banking firm of national reputation of their choice and one
law firm of their choice to advise them in their capacity as Independent
Directors with respect to any matter on which the Independent Directors, as
a group, are required or permitted to act hereunder.
SECTION 2.09. NOMINATION TO CIBA BOARD OF DIRECTORS. Unless
otherwise prohibited by applicable law and unless he is unwilling or unable
to serve, at the first opportunity available under Ciba's standard
operating procedures after the Effectiveness of this Agreement, Ciba shall
nominate Dr. William J. Rutter for election to its Board of Directors and
shall renominate Dr. Rutter to its
<PAGE>
24
Board of Directors at the conclusion of any term during which Dr. Rutter
shall serve as a director of Ciba for so long as Dr. Rutter shall remain
the Chairman of the Board of Directors or the principal executive officer
of the Company.
SECTION 2.10. STRATEGIC PLANNING PROCESS. (a) Management of the
Company shall prepare and propose to the Board of Directors a three year
Strategic Plan, beginning with the period 1996-1998. The Strategic Plan for
1996-1998 will be proposed to the Board of Directors within six months of
the Closing, and a Strategic Plan for each subsequent period will be
proposed not later than two months before the beginning of the first fiscal
year covered by such Plan. The goals of each Strategic Plan shall be
aggressive but reasonable and achievable. In connection with the
preparation of each Strategic Plan, management of the Company shall confer
on a reasonable basis with the Investor Directors.
(b) From time to time at the request of management of the
Company, and at least once a year during the second and third fiscal years
of a Strategic Plan and prior to the budgeting process for the following
year, management of the Company will hold a Strategic Review with the Board
of Directors and, in light of such review, management, or any three
Directors, may propose to the Board of Directors revisions or updates to
the Strategic Plan in light of changed circumstances.
(c) The entire Board of Directors shall consider and vote upon
any proposed new Strategic Plan or any revisions or updates to an existing
Strategic Plan, and approval of such matters will require a Supermajority
Vote of the Board.
SECTION 2.11. OPERATING PLANNING PROCESSES. (a) The management
of the Company will, on an annual basis, prepare and recommend to the Board
of Directors an Operating Plan for each fiscal year that is consistent with
the then applicable Strategic Plan. Management will submit an Operating
Plan for each fiscal year not later than one month before the beginning of
such fiscal year. The financial and operating performance goals in each
Operating Plan shall be aggressive but reasonable and achievable and the
budgets shall be reasonably designed to achieve such goals.
(b) The Operating Plan will be subject to the approval of the
Board of Directors. At any time after
<PAGE>
25
fiscal year 1995 that there is not in effect a Strategic Plan covering the
current year adopted by the Board of Directors in accordance with Section
2.10, approval of an Operating Plan will require a Supermajority Vote of
the Board and, except as set forth in Section 2.12, at all other times
approval of an Operating Plan will be by majority vote of the Board of
Directors.
SECTION 2.12. MEASUREMENT STANDARDS. (a) In connection with its
review and approval of the Operating Plan for each fiscal year, the Board
of Directors also shall set and approve Measurement Standards for that
fiscal year. The Measurement Standards will be set with a view such that
failure to meet such Measurement Standards taken as a whole (and taking
into account, to the extent the Directors judge to be appropriate, any
qualitative standards included in such goals) would represent an
unreasonably low rate of accretion in the overall valuation of the Company
compared to the expectations underlying the then effective Strategic Plan;
it being understood that the annual rate of accretion should not be less
than 7% in the absence of unusual circumstances (but may be considerably
more). While the Measurement Standards will be derived from the financial
and operating performance goals in the applicable Operating Plan and
Strategic Plan, if, as anticipated, the goals of those Plans are aggressive
(but reasonable and achievable), the Measurement Standards would be
expected to be significantly lower than those goals. If during a fiscal
year, events for which management should not reasonably be held accountable
or which management would not reasonably be expected to anticipate occur
that significantly adversely impact the Company's ability to fulfill
applicable Measurement Standards, the Directors shall in good faith
discuss whether revisions to the Measurement Standards are appropriate.
Approved Measurement Standards shall not change, however, without further
action of the Board of Directors under the next paragraph.
(b) The entire Board of Directors shall consider and vote upon
the establishment or revision of Measurement Standards, and approval of
such matters will require a Supermajority Vote of the Board.
(c) In the event Measurement Standards for any fiscal year
commencing with 1996 have not been approved by the beginning of such fiscal
year, then until Measurement Standards for such fiscal year are approved
pursuant to this Section 2.12, the Company shall not take any of the
<PAGE>
26
following actions unless approved by a Supermajority Vote of the Board:
(i) the granting of stock options and other equity rights to
any Section 16 Officers;
(ii) increasing compensation of any officer included in the
compensation table of the Company's most recent annual proxy statement
(or who would be included in the compensation table of the Company's
next annual proxy statement) (an "Executive Officer");
(iii) initiating any new collaboration or entering into any new
material licenses of technology with any entity, including Ciba; or
(iv) initiating new material capital projects.
(d) The Strategic Planning Committee will function from time to
time from and after the first day immediately following any fiscal year for
which the Company shall have failed to meet the applicable Measurement
Standards and will continue to function until the Measurement Standards for
a subsequent full fiscal year are fulfilled. The Strategic Planning
Committee will prepare and recommend to the entire Board of Directors a
remedial plan to restore the Company to compliance with applicable
Measurement Standards. In addition, during such period the Company shall
not take any of the following actions unless approved by a Supermajority
Vote of the Board:
(i) approving the remedial plan proposed by the Strategic
Planning Committee;
(ii) approving the Operating Plan proposed pursuant to Section
2.11(a); or
(iii) setting the form and amount of compensation of any
Executive Officer (on which matter the Management Directors shall not
vote).
(e) In the event the Company fails to meet the Measurement
Standards for two consecutive fiscal years, then thereafter until the
Measurement Standards for a subsequent full fiscal year are fulfilled, in
addition to the responsibilities of the Strategic Planning Committee set
forth in paragraph (d) above, the Strategic Planning Committee shall have
the delegated power of the Board of
<PAGE>
27
Directors to set the compensation and terminate the employment of the
Executive Officers. In addition, during such period the Company shall not
take any of the following actions unless approved by a Supermajority Vote
of the Board (and by any vote required pursuant to Section 2.04):
(i) all matters requiring approval by a Supermajority Vote of
the Board pursuant to paragraph (d) above;
(ii) hiring of any Executive Officers (on which matter the
Management Directors shall not vote);
(iii) issuance of any Equity Security (other than (A) stock
options consistent with past practice (other than to Section 16
Officers) and (B) pursuant to exercise of a warrant or option or
conversion of a convertible security, in each case that is outstanding
at the beginning of such period);
(iv) incurrence or issuance of any Indebtedness by the Company
or any of its Subsidiaries other than in the ordinary course of
business; or
(v) initiation of any material Acquisition by the Company or
any of its Subsidiaries.
ARTICLE III
EQUITY PURCHASES FROM THE COMPANY
SECTION 3.01. SUBSCRIPTION RIGHTS. So long as Ciba has the right
to designate any Investor Directors pursuant to Section 2.01, if the Board
of Directors shall authorize the issuance of New Securities to any Person
(other than (i) any New Securities issued to officers, employees or
directors of the Company or any of its Subsidiaries pursuant to any
employee stock offering, plan or arrangement in compliance with Section
2.04(b) and (ii) Ciba or its Affiliates (other than the Subsidiaries of the
Company)), then, prior to each such issuance of New Securities, the Company
shall offer to Ciba a Pro Rata Share of such New Securities. Any offer of
New Securities made to Ciba under this Section 3.01 shall be made by notice
in writing (the "Subscription Notice") at least 5 days prior to the date on
which the meeting of the Board of Directors is held to authorize the
issuance of such New Securities. The
<PAGE>
28
Subscription Notice shall set forth (i) the number of New Securities
proposed to be issued to Persons other than Ciba and the terms of such New
Securities, (ii) the consideration (or manner of determining the
consideration by reference to the market price), if any, for which such New
Securities are proposed to be issued and the terms of payment, (iii) the
number of New Securities offered to Ciba in compliance with the provisions
of this Section 3.01 and (iv) the proposed date of issuance of such New
Securities. Not later than 20 days after such Board of Directors meeting
authorizing such issuance is held, Ciba shall notify the Company in writing
whether it elects to purchase all or any portion of the New Securities
offered to Ciba pursuant to the Subscription Notice. If Ciba shall elect to
purchase any such New Securities, the New Securities which it shall have
elected to purchase shall be issued and sold to Ciba by the Company 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 New Securities are
issued for consideration other than cash, Ciba shall pay the Fair Market
Value thereof). If, for any reason, the issuance of New Securities to third
parties is not consummated, Ciba's right to its Pro Rata Share of such
issuance shall lapse, subject to Ciba's ongoing subscription right with
respect to issuances of New Securities at later dates or times.
SECTION 3.02. ISSUANCE AND DELIVERY OF NEW SECURITIES AND
VOTING STOCK. The Company represents and covenants to Ciba that (i) upon
issuance all of the shares of New Securities sold to Ciba pursuant to
this Article III shall be duly authorized, validly issued, fully paid
and nonassessable and will be approved (if outstanding securities of the
Company of the same type are at the time already approved) for quotation
on the NASDAQ National Market or for quotation or listing on the
principal trading market for the securities of the Company at the time
of issuance and (ii) upon delivery of such shares, they shall be free
and clear of all claims, liens, encumbrances, security interests and
charges of any nature and shall not be subject to any preemptive right
of any Shareholder of the Company. If at the time of issuance of any
shares of Common Stock pursuant to this Article III, the Company shall
not have redeemed the Rights (as defined in the Rights Agreement dated
as of August 29, 1994, between the Company and Continental Stock
Transfer and Trust Company, as Rights Agent), then each share of Common
Stock issued pursuant hereto shall have attached to it Rights or new
rights with
<PAGE>
29
terms substantially the same as, and at least as favorable to Ciba as,
are provided under the Rights. Each share issued or delivered by the
Company hereunder shall bear the legend set forth in Section 3.02(d) of
the Investment Agreement.
ARTICLE IV
LIMITATIONS ON PURCHASES OF ADDITIONAL EQUITY SECURITIES
SECTION 4.01. PURCHASES OF EQUITY SECURITIES. (a) During the
First Standstill Period, Ciba shall not, directly or indirectly,
purchase or otherwise acquire any Equity Securities from any Person
other than the Company unless (i) such acquisition is a Market Purchase
and (ii) immediately after such purchase or acquisition, Ciba's
Percentage Interest would not exceed the greatest of (A) 49.9%, (B) the
highest Ciba's Percentage Interest resulting from any acquisition by
Ciba or its Affiliates of Equity Securities that has been approved
pursuant to paragraph (c) below and (C) the highest Ciba's Percentage
Interest immediately following any action by the Company (including a
purchase by the Company of outstanding Equity Securities or a sale of
Equity Securities to Ciba or its Affiliates by the Company) that
increases Ciba's Percentage Interest.
(b) Subject to Section 4.01(d), during the Second Standstill
Period, Ciba shall not, directly or indirectly, purchase or otherwise
acquire any Equity Securities from any Person other than the Company unless
(i) such acquisition is a Market Purchase and (ii) immediately after such
purchase or acquisition, Ciba's Percentage Interest would not exceed the
greatest of (A) 55%, (B) the highest Ciba's Percentage Interest resulting
from any acquisition by Ciba or its Affiliates of Equity Securities that
has been approved pursuant to paragraph (c) below and (C) the highest
Ciba's Percentage Interest immediately following any action by the Company
(including a purchase by the Company of outstanding Equity Securities or a
sale of Equity Securities to Ciba or its Affiliates by the Company) that
increases Ciba's Percentage Interest.
(c) Except with respect to a Buyout Transaction, which shall be
governed by paragraph (d) below, any purchase or other acquisition of
Equity Securities by Ciba or its Affiliates (other than the Company and its
Subsidiaries)
<PAGE>
30
from any Person other than the Company not permitted by Section 4.01(a) or
(b) shall require the approval of a majority of the Independent Directors
acting solely in the interest of the Unaffiliated Equity Holders and in
granting such approval the Independent Directors, unless a majority of them
decide otherwise, will require a purchase price for such Equity Securities
in connection therewith reflecting a proportionate share of then prevailing
Third Party Sale Value; PROVIDED that no such purchase shall increase
Ciba's Percentage Interest above 79.9%.
(d) Ciba may propose and consummate a Buyout Transaction at any
time after the sixth anniversary of the Closing (or, if the provisions of
Section 2.12(e) are in effect on the fifth anniversary of the Closing or
come into effect during any fiscal year that begins after the fifth
anniversary of the Closing, at any time thereafter) and then only in
accordance with the following procedures:
(i) If Ciba is able to obtain the approval of a majority of
the Independent Directors for a proposed Buyout Transaction, Ciba may
proceed with such Buyout Transaction (in which event nothing in this
Agreement shall prevent or impede such Buyout Transaction from
proceeding or being consummated and the Company will take all action
reasonably necessary to allow such transaction to proceed in
accordance with the provisions hereof).
(ii) If Ciba is not able to obtain the approval of a majority
of the Independent Directors for a proposed Buyout Transaction within
four months after such Buyout Transaction is first proposed to the
Directors of the Company, Ciba may either (a) withdraw such proposal
(in which case Ciba may not again propose a Buyout Transaction for a
period of one year after such withdrawal) or (b) request arbitration
of the amount of the Third Party Sale Value pursuant to paragraph
(iii) below; PROVIDED that, unless the provisions of Section 2.12(e)
shall be in effect, a majority of the Independent Directors shall have
the right (the "Postponement Right"), exercisable on only one occasion
and within 14 days of Ciba's request for arbitration, to postpone
such arbitration for a period of up to one year from the date of
Ciba's request therefor, and if the Independent Directors shall so
postpone the arbitration, Ciba shall either (1) withdraw its proposal
for a Buyout Transaction, in which case Ciba
<PAGE>
31
may not again propose a Buyout Transaction for a period of one year,
or (2) accept such postponement.
(iii) Within 15 days of such arbitration request (or, if the
Independent Directors shall have duly exercised the Postponement Right
and Ciba shall have accepted such postponement pursuant to paragraph
(ii) above, within 15 days of the first anniversary of such
request), Ciba and the Company shall appoint an independent appraiser
(which shall be an internationally recognized investment bank)
mutually satisfactory to them that shall determine the aggregate Third
Party Sale Value for each class of Equity Securities with respect to
the proposed Buyout Transaction. If Ciba and the Company are unable to
agree on a mutually acceptable appraiser within such 15-day period,
such Third Party Sale Value shall be determined by a panel of three
independent appraisers (which shall be internationally recognized
investment banks), one of whom shall be appointed by Ciba, another by
the Company and the third of whom shall be appointed by the other two
appraisers or, if such two appraisers are unable to agree on a third
appraiser within seven days after the appointment of the second of
them, by the American Arbitration Association (or its successor);
PROVIDED, HOWEVER, that if Ciba or the Company shall not have
appointed its appraiser within 30 days after a request by Ciba for
arbitration of the amount of the Third Party Sale Value, the
determination of the Third Party Sale Value shall be made solely by
the appraiser selected by the other party. Ciba and the Company may
each submit to the appraiser (or, if applicable, the appraisers)
their respective positions on the Third Party Sale Value (as a whole,
and not on an Equity Security class by class basis) and may also
submit written and oral presentations to support their respective
positions. The appraiser or appraisers shall determine the aggregate
amount of the Third Party Sale Value (and, if applicable, the Fair
Market Value on the date of such determination of any securities
payable as part of the Third Party Sale Value Consideration). If
necessary, the appraiser or appraisers shall also allocate such
aggregate Third Party Sale Value among the classes of Equity
Securities. The appraiser or appraisers shall be directed to make
their determination within thirty
<PAGE>
32
calendar days of appointment and such determination, when made, shall
be final and binding with respect to the proposed Buyout Transaction.
(iv) Within ten business days after the appropriate Third Party
Sale Value is determined pursuant to the procedures set forth in
paragraph (iii) above, Ciba shall elect (a) to proceed with a Buyout
Transaction offering such Third Party Sale Value Consideration payable
in cash and/or marketable securities (in which event nothing in this
Agreement shall prevent or impede such Buyout Transaction from
proceeding or being consummated and the Company will take all action
reasonably necessary to allow such transaction to proceed in
accordance with the provisions hereof) or (b) to withdraw its proposal
for a Buyout Transaction (in which event Ciba may not again propose a
Buyout Transaction for a period of one year after such withdrawal);
PROVIDED, HOWEVER, that Ciba shall have the right to elect to withdraw
its proposal for a Buyout Transaction pursuant to the foregoing clause
(b) on only one occasion (it being understood that a withdrawal
pursuant to the proviso to clause (b) of paragraph (ii) above shall
not count as such a withdrawn proposal).
(v) In the event that a single appraiser is appointed under
paragraph (iii) above, the fees and expenses of such appraiser shall
be divided equally between Ciba and the Company. In the event that
more than a single appraiser is appointed, the fees and expenses of
the appraiser appointed by Ciba shall be paid by Ciba, the fees and
expenses of the appraiser appointed by the Company shall be paid by
the Company and the fees and expenses of the third appraiser shall be
divided equally between Ciba and the Company.
SECTION 4.02. ADDITIONAL LIMITATIONS. During the Standstill
Periods, Ciba shall not, and shall not permit its Subsidiaries to:
(a) make, or in any way participate, directly or indirectly, in
any "solicitation" of "proxies" to vote (as such terms are used in the
proxy rules of the SEC) or seek to advise, encourage or influence any
person or entity with respect to the voting of any shares of capital
stock of the Company, initiate, propose or otherwise solicit
stockholders of the Company for the
<PAGE>
33
approval of one or more stockholder proposals or induce or attempt to
induce any other individual, firm, corporation, partnership or other
entity to initiate any stockholder proposal; or
(b) deposit any shares of Voting Stock into a voting trust or
subject any shares of Voting Stock to any arrangement or agreement
with respect to the voting of such securities or form, join or in any
way participate in or otherwise encourage the formation of a 13D Group
with respect to any shares of Common Stock.
ARTICLE V
TRANSFER OF COMMON STOCK
SECTION 5.01. TRANSFER OF COMMON STOCK. (a) During the
Standstill Periods, Ciba will not, and will not permit any wholly owned
Subsidiary of Ciba to, directly or indirectly, sell, transfer or
otherwise dispose of any shares of Common Stock except (i) pursuant to a
registered underwritten public offering in accordance with the
Registration Rights Agreement, (ii) in accordance with the volume and
manner-of-sale limitations of Rule 144 promulgated under the Securities
Act (regardless of whether such limitations are applicable) and (iii) to
any directly or indirectly wholly owned Subsidiary of Ciba.
(b) During the Standstill Periods, Ciba will not, and will
not permit any wholly owned Subsidiary of Ciba to, directly or
indirectly, sell, transfer or otherwise dispose of any interest in any
shares of Common Stock to any purchaser or group (within the meaning of
Section 13(d)(3) of the Exchange Act) of purchasers, if, after giving
effect to such sale, such purchaser or group of purchasers would, to
Ciba's knowledge, own, or have the right to acquire, 5% or more of the
then outstanding shares of Common Stock.
(c) During the Standstill Periods, Ciba shall not sell,
transfer or otherwise dispose of any of the capital stock of any wholly
owned Subsidiary of Ciba that owns shares of Common Stock, except to
another wholly owned Subsidiary of Ciba.
(d) Purported transfers of shares of Common Stock that are not
in compliance with this Article V shall be of no force or effect.
<PAGE>
34
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. NOTICES. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, facsimile transmission, telegram or telex or by
registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this
Section 6.01) specified in Section 7.02 of the Investment Agreement.
SECTION 6.02. AMENDMENTS; WAIVERS. (a) No provision of this
Agreement may be amended or waived unless such amendment or waiver is in
writing and signed, in the case of an amendment, by the parties hereto, or
in the case of a waiver, by the party against whom the waiver is to be
effective; PROVIDED that no such amendment or waiver by the Company shall
be effective without the approval of a majority of the Independent
Directors or, in the case of an amendment to or waiver of the provisions of
Article IV, without the approval of 100% of the Independent Directors
(except for amendments or waivers of the provisions of Article IV that are
administrative in nature and that do not materially adversely affect the
rights of the Unaffiliated Equity Holders, which amendments and waivers
shall only require the approval of a majority of the Independent
Directors).
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 6.03. SEVERABILITY. If any term or provision of this
Agreement or the application thereof to either party or set of
circumstances shall, in any jurisdiction and to any extent, be finally
held invalid or unenforceable, such term or provision shall only be
<PAGE>
35
ineffective as to such jurisdiction, and only to the extent of such
invalidity or unenforceability, without invalidating or rendering
unenforceable any other terms or provisions of this Agreement or under any
other circumstances, and the parties shall negotiate in good faith a
substitute provision which comes as close as possible to the invalidated or
unenforceable term or provision, and which puts each party in a position
as nearly comparable as possible to the position it would have been in but
for the finding of invalidity or unenforceability, while remaining valid
and enforceable.
SECTION 6.04. ENTIRE AGREEMENT; ASSIGNMENT. (a) The Investment
Agreement, this Agreement, the Registration Rights Agreement, the other
Ancillary Agreements and the agreements contemplated hereby and thereby
constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof and supersede all prior agreements
and undertakings, both written and oral, between the parties with respect
to the subject matter hereof.
(b) None of the parties to this Agreement shall assign any of
its rights or obligations hereunder without the prior written consent of
the other parties hereto, except that Ciba and C Corp may assign all or any
of their rights and obligations hereunder to any wholly owned (directly or
indirectly) Subsidiary of Ciba that agrees in writing to be bound by the
provisions hereof; PROVIDED that no such assignment shall relieve Ciba or
C Corp of their obligations hereunder.
SECTION 6.05. PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person, other than the parties hereto and their
respective permitted successors and assigns, any right, benefit or remedy
of any nature or kind whatsoever under or by reason of this Agreement.
SECTION 6.06. SPECIFIC PERFORMANCE. The parties hereto recognize and
agree that immediate irreparable damages for which there is no adequate
remedy at law would occur in the event that any provision of this Agreement
is not performed in accordance with the specific terms hereof or is
otherwise breached. It is accordingly agreed that in the event of a failure
by a party to perform its obligations
<PAGE>
36
under this Agreement, the nonbreaching party shall be entitled to specific
performance through injunctive relief to prevent breaches of the provisions
of this Agreement and to enforce specifically the provisions of this
Agreement in any action instituted in any court having subject matter
jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity.
SECTION 6.07. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed and to be fully performed in that State.
All actions and proceedings arising out of or relating to this Agreement
shall be brought by the parties and heard and determined only in a Delaware
state court or a federal court sitting in that State and the parties hereto
consent to jurisdiction before and waive any objections of venue to the
Delaware Chancery Court.
SECTION 6.08. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same agreement.
SECTION 6.09. EFFECTIVENESS; TERMINATION. This Agreement shall
become effective upon the Effectiveness of this Agreement. This Agreement
shall terminate at such time (i) that the Investment Agreement is
terminated in accordance with its terms, (ii) after the Effectiveness of
this Agreement that Ciba and its Affiliates beneficially own Voting Stock
representing 100% or less than 10% of the then applicable Total Voting
Power or (iii) that any Person or 13D Group beneficially owns or controls
Voting Stock representing more than 50% of the Total Voting Power;
PROVIDED, HOWEVER, that, in the event that this Agreement shall terminate
under clause (ii) because Ciba's ownership is less than 10%, Article IV
shall survive such termination for a period of three years from the date of
such termination.
SECTION 6.10. WAIVER OF JURY TRIAL. Each of the parties hereto
hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Agreement or the actions of any of them
in the negotiation, administration, performance and enforcement thereof.
<PAGE>
37
SECTION 6.11. FINANCIAL STATEMENTS. (a) From and after the
Effectiveness of this Agreement, the Company shall furnish to Ciba:
(i) within 65 days after the end of each fiscal year, its
consolidated balance sheet and related statements of income and
changes in financial position, showing the financial condition of the
Company and its consolidated Subsidiaries as of the close of such
fiscal year and the results of its operations and the operations of
such Subsidiaries during such year, all audited by KPMG Peat Marwick
or other independent public accountants of recognized international
standing and accompanied by an opinion of such accountants (which
shall not be qualified in any material respect) to the effect that
such consolidated financial statements fairly present the financial
condition and results of operations of the Company on a consolidated
basis in accordance with GAAP consistently applied; and
(ii) within 35 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated balance sheet
and related statements of income and changes in financial position,
showing the financial condition of the Company and its consolidated
Subsidiaries as of the close of such fiscal quarter and the results of
its operations and the operations of such Subsidiaries during such
fiscal quarter and the then elapsed portion of the fiscal year, all
certified by one of the senior financial officers as fairly presenting
the financial condition and results of operations of the Company on a
consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments.
(b) At the request of Ciba, at such time as Ciba is required to
include the financial results of the Company in Ciba's financial
statements, the Company shall cooperate with and assist Ciba in the
translation of the financial statements referred to in paragraph (a) above
in order to conform such financial statements to international accounting
standards.
SECTION 6.12. BUSINESS OPPORTUNITIES. Except as otherwise
provided in this Agreement, the Ancillary Agreements or otherwise pursuant
to a written agreement among the parties, (i) neither Ciba nor any of its
Subsidiaries or Affiliates (other than the Company and its
<PAGE>
38
Subsidiaries), on the one hand, nor Chiron or any of its Subsidiaries or
Affiliates (other than, if applicable, Ciba and its Subsidiaries), on the
other hand (each such group referred to in this Section 6.12 as a "party"),
shall have any obligation to provide to or share with the other any of such
party's corporate opportunities, (ii) each party shall have the right to
pursue its own corporate opportunities and shall not be restricted from
competing directly or indirectly with the other and (iii) each party shall
have the right to pursue any corporate opportunities jointly created or
developed by the parties or which otherwise become known to either of them
(other than any such opportunity specifically directed to or otherwise made
available for the benefit of the other party and subject to any obligation
of confidentiality relating to such corporate opportunity). Each party may
establish reasonable appropriate internal procedures and operations,
including
<PAGE>
39
procedures which (subject to and consistent with Sections 2.04 and 2.12 and
the right of the Investor Directors to vote upon any matter presented to
the Board of Directors) are reasonably designed to protect potential
opportunities during consideration by its Board of Directors.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CHIRON CORPORATION,
By /s/ William J. Rutter
-----------------------------------
Name:
Title:
CIBA-GEIGY LIMITED
By /s/ Alex Krauer
-----------------------------------
Name:
Title:
By /s/ John Cheesmond
-----------------------------------
Name:
Title:
CIBA-GEIGY CORPORATION
By /s/ McGraw
-----------------------------------
Name:
Title:
<PAGE>
SCHEDULE 2.01 TO
THE GOVERNANCE AGREEMENT
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
Management Directors
---------------------
<S> <C>
William J. Rutter I
Edward E. Penhoet II
Jack W. Schuler III
<CAPTION>
Independent Directors
---------------------
<S> <C>
Donald A. Glaser I
Pieter J. Strijkert I
Gilbert F. Amelio II
Henri Schramek II
Lewis W. Coleman III
</TABLE>
<PAGE>
ANNEX A TO
THE GOVERNANCE AGREEMENT
The Strategic Plan will address, among other items, (i) a market
and technology/patent analysis (including at the strategic business unit
level); (ii) a competitive analysis; (iii) an analysis of regulatory
developments and potential impacts; (iv) an analysis of critical success
factors and potential changes; (v) an analysis of strengths, weaknesses,
opportunities and threats; (vi) a portfolio analysis; (vii) strategic
objectives (financial and non-financial); (viii) key strategies, programs
and resources (including product pipeline assessment/projections,
partnerships, joint ventures, acquisitions and capital expenditures, etc.);
(ix) an analysis of equity and debt financing and (x) financial strategic
parameters (including income before interest and taxes and earnings per
share for a minimum of three fiscal years and including sensitivities and
nonfinancial strategic parameters (including milestones on product
approvals, introductions, etc.) and risk assessment.
<PAGE>
Exhibit 10.703
EXECUTION COPY
SUBSCRIPTION AGREEMENT dated as of November 20, 1994
(this "Agreement"), among CIBA-GEIGY LIMITED, a Swiss
corporation ("Ciba"), CIBA-BIOTECH PARTNERSHIP, INC., a
Delaware corporation ("Purchaser") and an indirectly wholly
owned subsidiary of Ciba, CIBA-GEIGY CORPORATION, a New York
corporation ("C Corp"), and CHIRON CORPORATION, a Delaware
corporation (the "Company").
WHEREAS Ciba, C Corp, Purchaser and the Company have entered into
the Investment Agreement dated as of the date hereof (the "Investment
Agreement");
WHEREAS each of Ciba, C Corp, Purchaser and the Company have each
determined to engage in the transactions contemplated by the Investment
Agreement pursuant to which transactions Ciba initially will own a minority
of the then outstanding shares of Common Stock of the Company;
WHEREAS in partial consideration for the Company to enter into
the Investment Agreement and certain related agreements and arrangements,
Purchaser is willing to subscribe to purchase additional Common Shares; and
WHEREAS Purchaser and the Company desire to set forth in this
Agreement their agreement with respect to the purchase by the Purchaser of
shares ("Common Shares") of the Company's Common Stock, $0.01 par value
(the "Common Stock"), as more completely described in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein and for other good and valuable consideration,
the sufficiency and receipt of which are hereby acknowledged, the parties
hereto hereby agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION. The rules of
interpretation set forth in Section 7.04 of the Investment Agreement shall
apply to this Agreement, and the provisions thereof shall be deemed to be
incorporated by reference herein. As used in this Agreement, the following
terms shall have the following meanings:
<PAGE>
2
"AFFILIATE" has the meaning assigned to such term in the
Governance Agreement.
"ANCILLARY AGREEMENTS" has the meaning assigned to such term in
the Investment Agreement.
"CLOSING" has the meaning assigned to such term in the Investment
Agreement.
"CLOSING DATE" has the meaning assigned to such term in the
Investment Agreement.
"EXCHANGE ACT" has the meaning assigned to such term in the
Governance Agreement.
"FAIR MARKET VALUE" means, as of any date of determination, the
average of the closing sale prices of Common Shares during the 10 trading
day period immediately preceding such date of determination on the
principal United States securities exchange registered under the Exchange
Act on which Common Shares are listed or, if Common Shares are not listed
on any such exchange, the average of the closing sale prices or the closing
bid quotations of Common Shares during the 10 trading day period preceding
such date of determination on the Nasdaq National Market or any comparable
system then in use or, if no such quotations are available, the fair market
value of Common Shares as of such date of determination as determined in
good faith by a majority of the Independent Directors.
"GOVERNANCE AGREEMENT" has the meaning assigned to such term in
the Investment Agreement.
"HSR ACT" has the meaning assigned to such term in the Investment
Agreement.
"INVESTMENT AGREEMENT" has the meaning assigned to such term
above.
"MARKET PRICE OPTION AGREEMENT" means the Market Price Option
Agreement dated as of the date hereof among Ciba, C Corp, Purchaser and
the Company.
"PERSON" shall have the meaning assigned to such term in the
Governance Agreement.
<PAGE>
3
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof among Ciba, C Corp, Purchaser and the
Company.
"REQUEST NOTICE" has the meaning assigned to such term in
Section 2(b).
"SEC" has the meaning assigned to such term in the Governance
Agreement.
"SEC DOCUMENTS" shall mean the most recently filed annual report
on Form 10-K of the Company filed with the SEC and each report, schedule,
form, statement and other documents filed by the Company with the SEC
thereafter.
"SECURITIES ACT" has the meaning assigned to such term in the
Governance Agreement.
"SUBSCRIPTION AMOUNT" means, initially, $500,000,000, and,
thereafter, such amount as reduced by the aggregate price paid from time to
time after the Closing by the Purchaser or any of its Affiliates to the
Company or any Subsidiary of the Company for each purchase from the Company
or any Subsidiary of the Company of any Equity Securities by any of them,
whether pursuant to the Market Price Option Agreement, the Governance
Agreement, this Agreement or otherwise except for (i) purchases by the
Purchaser or its Affiliates in connection with collaborations entered into
by Purchaser or its Affiliates and the Company in accordance with the terms
of the Cooperation and Collaboration Agreement dated as of the date hereof
between Ciba and the Company (ii) Equity Securities issued to Ciba or its
Affiliates in accordance with the terms of the Research and Development
Agreement referred to in Section 5.16 of the Investment Agreement.
"SUBSCRIPTION CLOSING" has the meaning assigned to such term in
Section 2(b).
"SUBSCRIPTION CLOSING DATE" has the meaning assigned to such term
in Section 2(b).
"SUBSCRIPTION PERIOD" means the eleven year period commencing
with the Closing Date.
SECTION 2. SALE AND PURCHASE OF SHARES.
(a) Subject to the terms and conditions herein set forth
<PAGE>
4
and Section 2.04 of the Governance Agreement, the Purchaser agrees to
purchase from the Company, and the Company agrees to sell to Purchaser,
from time to time and at any time during the Subscription Period upon each
request of the Company, Common Shares for an aggregate purchase price at
any Subscription Closing not in excess of the Subscription Amount remaining
as of the applicable Subscription Closing Date.
(b) In order for the Company to request Purchaser to purchase
any of the Shares pursuant to Section 2(a), the Company shall, prior to the
expiration of the Subscription Period, give written notice to Purchaser of
such request (a "Request Notice"), specifying the number of shares to be
purchased (which shall be a number that results in an aggregate purchase of
at least the lesser of $5,000,000 and the then remaining Subscription
Amount) and the place, time and date of the closing of such purchase (each
a "Subscription Closing" or a "Subscription Closing Date"), which date
shall not be less than five business days nor more than ten business days
from the date on which such notice is delivered.
(c) At each Subscription Closing, the Company shall deliver to
Purchaser all of the Common Shares to be purchased by delivery of a
certificate or certificates evidencing such Common Shares in the
denominations designated by Purchaser by notice to the Company given by the
Purchaser prior to the Subscription Closing. Each of such Common Shares
shall bear the legend set forth in Section 3.02(d) of the Investment
Agreement. If at the time of issuance of any Common Shares pursuant hereto,
the Company shall not have redeemed the Rights (as defined in the Rights
Agreement dated as of August 29, 1994, between the Company and Continental
Stock Transfer and Trust Company, as Rights Agent, as the same may be
amended from time to time), then each Common Share issued pursuant hereto
shall have attached to it Rights or new rights with terms substantially the
same as, and at least as favorable to Purchaser as, are provided generally
to holders of shares of Common Stock under the Rights.
(d) Notwithstanding anything in the foregoing to the contrary,
the Company shall have no rights, and Ciba shall have no obligations, under
this Section 2 or Section 3 hereof if during the 10 trading day period (or
the date of determination if no quotes of the type referred to in the
definition of Fair Market Value are available) applicable to
<PAGE>
5
the determination of the Fair Market Value with respect to any proposed
purchase and sale of Common Shares pursuant to this Agreement the Company
is in possession of any material adverse undisclosed information regarding
the Company that would be required to be disclosed by the Company in a
registration statement under the Securities Act in connection with a public
offering of Common Stock of the Company.
SECTION 3. PAYMENT; FUNDING. (a) In the event the Company
requests, pursuant to Section 2, Purchaser to purchase any Common Shares,
Purchaser shall, at the related Subscription Closing, deliver by wire
transfer to an account designated at least two business days in advance of
such Subscription Closing an amount equal to the Fair Market Value of the
Common Shares being issued and sold by the Company to the Purchaser
determined as of the business day that occurs three business days prior to
such Subscription Closing.
(b) Ciba and/or C Corp shall provide Purchaser on a timely basis
all funds required for Purchaser to fulfill its obligation under this
Agreement to purchase Common Shares.
SECTION 4. REGISTRATION RIGHTS. The Common Shares purchased
pursuant to this Agreement shall be entitled to the registration rights
provided for in the Registration Rights Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES. (a) The Company hereby
represents and warrants to Purchaser as follows:
(i) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of the Company and no
other corporate proceedings on the part of the Company are necessary
to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by the Company. Prior to delivery of any Request Notice
pursuant to Section 2(b), the Company will have taken all necessary
corporate and other action to authorize, and to permit it to deliver
the full number of Common Shares purchasable pursuant to such Request
Notice.
<PAGE>
6
Upon issuance, all of such Common Shares shall be duly authorized,
validly issued, fully paid and nonassessable and will be approved for
quotation on the Nasdaq National Market, or for quotation or listing
on the principal trading market for the Common Shares at the time of
issuance. Upon delivery of such Common Shares they shall be free and
clear of all claims, liens, encumbrances, security interests and
charges of any nature whatsoever and shall not be subject to any
preemptive right of any shareholder of the Company;
(ii) Except for filings under the HSR Act, if applicable, no
filing with, and no permit, authorization, consent or approval of, any
state, Federal or foreign public body or authority is necessary for
the execution of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby (including the
sale of Common Shares hereunder);
(iii) The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC during the current
calendar year and the two prior calendar years. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC
Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements
of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates thereof and their
consolidated statements of operations, stockholders equity and cash
flows for the periods then ended
<PAGE>
7
(subject, in the case of unaudited statements, to normal year-end
audit adjustments);
(iv) Except for filings under the HSR Act, if applicable, neither
the execution and delivery of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby
nor compliance by the Company with any of the provisions hereof shall
(x) conflict with or result in any breach of, or require any vote
under, any provision of the Certificate of Incorporation of the
Company or the By-laws of the Company, (y) result in a violation or
breach of, or constitute (with or without notice or lapse of time or
both) a default (or give rise to any third party right of termination,
cancelation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be
bound or (z) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or its Subsidiaries or
any of their properties or assets, except in the case of (y) or (z)
for violations, breaches or defaults which would not, in the
aggregate, have a material adverse effect on the business, assets,
results of operations or financial condition of the Company and its
subsidiaries taken as a whole or materially impair the ability of the
Company to perform its obligations hereunder; and
(v) This Agreement has been approved by a two-thirds vote of the
"Continuing Directors" (as defined in Article ELEVENTH of the
Company's Certificate of Incorporation).
(b) Each of the Purchaser, Ciba and C Corp hereby represents and
warrants as to itself as follows:
(i) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby (including the
exercise of the Option) by the Closing Date will have been duly and
validly authorized by its Board of Directors and no other corporate
proceedings on its part are necessary to authorize this Agreement or
to consummate the transactions
<PAGE>
8
contemplated hereby. This Agreement has been duly and validly executed
and delivered by it.
(ii) Except for filings under the HSR Act, if applicable,
neither the execution and delivery of this Agreement by it nor the
consummation by it of the transactions contemplated hereby nor
compliance by it with any of the provisions hereof shall (x) conflict
with or result in any breach of, or require any vote under, any
provision of its Certificate of Incorporation or its By-laws, (y)
result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancelation, material modification or
acceleration) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which it or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may
be bound or (z) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to it or its Subsidiaries or any of
their properties or assets, except in the case of (y) or (z) for
violations, breaches or defaults which would not, in the aggregate,
have a material adverse effect on the business, assets, results of
operations or financial condition of it and its Subsidiaries taken as
a whole or materially impair its ability to perform its obligations
hereunder.
(c) Purchaser hereby represents and warrants to the Company that
any Common Shares acquired by Purchaser hereunder will be acquired for
investment only and not with a view to any public distribution of all or
any portion thereof, and Purchaser will not offer to sell or otherwise
dispose of all or any portion of such Common Shares in violation of any of
the registration requirements of the Securities Act.
SECTION 6. CONDITIONS PRECEDENT. The Purchaser's obligation to
purchase any Common Shares is subject to the satisfaction as of the
applicable Subscription Closing Date of the following conditions:
(a) The representations and warranties of the Company made in
this Agreement shall be true and correct in all material respects as
of the date of this
<PAGE>
9
Agreement and as of the applicable Subscription Closing Date with the same
effect as if made at and as of such Subscription Closing Date, except to
the extent such representations and warranties expressly relate to an
earlier time. The Company shall have performed in all material respects the
covenants and agreements of the Company contained in the this Agreement,
the Investment Agreement, the Governance Agreement and each of the other
Ancillary Agreements required to be performed at or prior to the applicable
Subscription Closing and no material breach, or event which would, with the
giving of notice or the passage of time or both, constitute a default,
shall have occurred and be continuing thereunder. Purchaser shall have
received a certificate from a senior officer of the Company dated such
Subscription Closing Date, as to the satisfaction of this Section 6(a).
(b) The Company, Ciba and its Affiliates shall have obtained or
made all consents, approvals, orders, licenses, permits and authorizations
of, and registrations, declarations and filings with, any governmental
authority or any other Person required to be obtained or made by or with
respect to the Company, Ciba or Ciba's Affiliates in connection with such
sale.
(c) There shall not be threatened or pending by any governmental
authority any suit, action or proceeding, and there shall not be pending by
any other Person, any suit, action or proceeding, which has a reasonable
likelihood of success, seeking to restrain or prohibit the issuance and
sale of the applicable Common Shares, and no injunction, decree or order of
any governmental authority shall be in effect as of the applicable
Subscription Closing which would restrain or prohibit the issuance and sale
of the applicable Common Shares.
(d) The issuance and sale of the applicable Common Shares shall
not violate, or cause the violation of, any applicable law or regulations.
(e) Ciba shall not become subject to any materially greater
regulatory requirements or subject its existing investment in the Company
to any additional material restriction due to the increase in its
percentage ownership of the Company resulting from such purchase of Common
Shares, in each case due to
<PAGE>
10
(1) any change of law regulations after the date hereof or any changed
circumstance arising therefrom or (2) any change in circumstances
due to any action by the Company or any of its Subsidiaries.
(f) The Purchaser shall have received an opinion dated the
applicable Subscription Agreement Closing Date of the General Counsel
of the Company to the effect that the Common Shares being purchased by
the Company on such date are duly authorized, validly issued, fully
paid and nonassessable.
The failure to satisfy any of the foregoing conditions as of any
Subscription Closing Date and the resulting cancellation of the purchase
and sale of the Common Shares proposed to be sold to the Company on such
date shall not prohibit the Company from giving further Request Notices. In
the event that there shall be in effect as of any Subscription Closing any
injunction, decree or order referred to in Section 6(c), the Company or
Purchaser, as applicable, shall use all reasonable efforts to have such
injunction, decree or order vacated, lifted or overturned.
SECTION 7. MISCELLANEOUS. (a) From time to time, at any of the
other parties' request and without further consideration, each party hereto
shall execute and deliver such additional documents, transfers,
assignments, endorsements, consents and other instruments and take all such
further action as may be necessary or desirable to consummate the
transactions contemplated by this Agreement, including, without limitation,
to vest in Purchaser good title to any Common Shares purchased hereunder.
(b) All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
cable, facsimile transmission, telegram or telex or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties and at the addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this
paragraph) specified in Section 7.02 of the Investment Agreement.
(d) No provision of this Agreement may be amended or waived
unless such amendment or waiver is in writing and signed, in the case of an
amendment, by the parties hereto,
<PAGE>
11
or in the case of a waiver, by the party against whom the waiver is to be
effective.
(e) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as waiver thereof nor shall
any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
(f) If any term or provision of this Agreement or the
application thereof to either party or set of circumstances shall, in any
jurisdiction and to any extent, be finally held invalid or unenforceable,
such term or provision shall only be ineffective as to such jurisdiction,
and only to the extent of such invalidity or unenforceability, without
invalidating or rendering unenforceable any other terms or provisions of
this Agreement or under any other circumstances, and the parties shall
negotiate in good faith a substitute provision which comes as close as
possible to the invalidated or unenforceable term or provision, and which
puts each party in a position as nearly comparable as possible to the
position it would have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.
(g) The Investment Agreement, the Governance Agreement, the
Registration Rights Agreement, this Agreement and the other Ancillary
Agreements and the agreements contemplated hereby and thereby, constitute
the entire agreement among the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, between the parties with respect to
the subject matter hereof.
(h) Neither party to this Agreement shall assign any of its
rights or obligations hereunder without the prior written consent of the
other party hereto, except that Purchaser, Parent and C Corp may assign all
or any of its rights and obligations hereunder to Ciba or to any of Ciba's
wholly owned Subsidiaries but no such assignment shall relieve such parties
of their obligations hereunder.
(i) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and
<PAGE>
12
nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person, other than the parties hereto and their
respective permitted successors and assigns, any right, benefit or remedy
of any nature or kind whatsoever under or by reason of this Agreement.
(j) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware applicable to contracts
executed and to be fully performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be brought
by the parties and heard and determined only in a Delaware state court or a
federal court sitting in that State and the parties hereto consent to
jurisdiction before and waive any objectives of venue to the Delaware
Chancery Court.
(k) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which taken together
shall constitute one and the same agreement.
(l) The parties hereto each hereby irrevocably waives all right
to trial by jury in any action, proceeding or counterclaim (whether based
on contract, tort or otherwise) arising out of or relating to this
Agreement or the actions of any party hereto in the negotiation,
administration, performance and enforcement thereof.
IN WITNESS WHEREOF, the Company, Purchaser, Ciba and C Corp have
caused this Agreement to be duly executed as of the day and year first
above written.
CIBA BIOTECH PARTNERSHIP, INC.,
by /s/ McGraw
--------------------------
Name:
Title:
<PAGE>
13
CHIRON CORPORATION,
by /s/ William J. Rutter
--------------------------
Name:
Title:
CIBA-GEIGY LIMITED,
by /s/ Alex Krauer
--------------------------
Name:
Title:
by /s/ John Cheesmond
--------------------------
Name:
Title:
CIBA-GEIGY CORPORATION,
by /s/ McGraw
--------------------------
Name:
Title:
<PAGE>
Exhibit 10.704
EXECUTION COPY
COOPERATION AND COLLABORATION AGREEMENT dated as
of November 20, 1994 (this "Agreement"), among CIBA-GEIGY
LIMITED, a Swiss corporation ("CGL"), and CHIRON
CORPORATION, a Delaware corporation ("Chiron").
WHEREAS the parties have determined to enter into a strategic
partnership in the area of biotechnology and other new technologies in the field
of human healthcare under which they will cooperate in the marketing and
manufacturing and collaborate in research and development projects to discover
and bring to market, Modern Health Care Products (as hereinafter defined) to be
selected by the parties over the course of the collaboration;
WHEREAS the parties embrace the principle of seeking opportunities
within which they can each be the best partner for the other, and opportunities
within which their cooperation and collaboration will bring together
complementary technical and commercial strengths permitting them to achieve
greater success than they could achieve separately;
WHEREAS the parties also intend to cooperate in order to strengthen
each other's scientific, marketing and manufacturing positions;
WHEREAS the parties intend to conduct their relationships hereunder on
an arm's length basis;
WHEREAS the parties desire that Chiron continue to pursue, and that
they cooperate in order to accelerate the achievement of, Chiron's strategic
mission to become a world-leading, fully-integrated, technology-based health
care company using biotechnology and other emerging technologies (including,
without limitation, medicinal chemistry, combinatorial libraries, ophthalmic
medications, devices and treatments) ("Chiron's Strategic Mission");
WHEREAS the parties intend that Chiron's corporate and scientific
cultures will be preserved, that Chiron will remain and be perceived to remain
an autonomous and entrepreneurial business within its Strategic Mission and that
Chiron will continue to be a worldwide center of excellence in the area of
biotechnology;
<PAGE>
2
WHEREAS the parties acknowledge that in pursuit of their respective
strategic missions, each party will be free to continue to enter into extensive
collaborations with third parties which will be negotiated and managed
independently of the other party and under terms that protect fully the rights
and opportunities of such third parties;
WHEREAS the parties expect and intend that Chiron serve as an
acquisition platform to acquire technologies and businesses to fulfill its
Strategic Mission;
WHEREAS the parties desire to set forth their agreements and covenants
and other terms and conditions with respect to the foregoing, including the
terms under which the parties will cooperate and collaborate with each other in
the area of biotechnology; and
WHEREAS Chiron, CGL, Ciba-Geigy Corporation, a New York corporation,
and Ciba Biotech Partnership, Inc., a New York corporation, have entered into
the Investment Agreement dated as of the date hereof (the "Investment
Agreement"), and Chiron, CGL and Corp have entered into the Governance
Agreement dated as of the date hereof (the "Governance Agreement").
NOW, THEREFORE, in consideration of the covenants and agreements
herein set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows.
ARTICLE I
DEFINITIONS; INTERPRETATION
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
"AFFILIATE" shall have the meaning ascribed thereto in the Investment
Agreement.
"MODERN HEALTH CARE INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that could reasonably be expected to be used in the development or
production of, or as a component of, a Modern Health Care Product.
<PAGE>
3
"MODERN HEALTH CARE PRODUCTS" shall mean (i) biopharmaceuticals,
(ii) other pharmaceutical products discovered, developed, acquired or
manufactured using biotechnology processes, medicinal chemistry and/or new
biologies and (iii) any other products which fall within Chiron's Strategic
Mission, but shall not include ophthalmic surgical device products.
"DEVELOPING PARTY" shall mean, with respect to any Modern Health Care
Product, as of any date of determination, the party that has the right to market
and distribute such Modern Health Care Product in any territory or the party
that has the right to manufacture such Modern Health Care Product, as applicable
(including, in each case, the right to convey such right to the other party).
"INTELLECTUAL PROPERTY" shall mean know-how, inventions, discoveries
and trade secrets, whether patentable or not in any jurisdiction; patents,
applications for patents (including, without limitation, divisions,
continuations, continuations in-part and renewal applications, and any renewals,
extensions or reissues thereof, or supplementary patent certificates derived
therefrom, in any jurisdiction); and technologies, whether developed or
currently under development.
"NON-DEVELOPING PARTY" shall mean, with respect to any Modern Health
Care Product, as of any date of determination, the party that is not the
Developing Party.
"PERSON" shall have the meaning ascribed thereto in the Investment
Agreement.
"SCIENCE COMMITTEE" shall mean the Science Committee referred to in
Section 2.02.
"SCIENTIFIC CONFERENCE" shall refer to the Scientific Conference to be
held each calendar year in accordance with Section 2.03.
"SUBSIDIARY" shall have the meaning ascribed thereto in the Investment
Agreement.
"VOTING STOCK" shall have the meaning ascribed thereto in the
Governance Agreement.
SECTION 1.02. INTERPRETATION. (a) The rules of interpretation set
forth in Section 7.04 of the Investment
<PAGE>
4
Agreement shall apply to this Agreement, and the provisions thereof shall be
deemed to be incorporated by reference herein.
(b) As used in this Agreement, a party shall be competent with respect
to any project or activity if such party has the requisite capabilities
(expertise, personnel, intellectual property and/or other capabilities as
applicable) and is well positioned to accelerate achievement of the success of
the project or activity in question, in the reasonable judgment of the other
party.
(c) As used in this Agreement, an obligation to negotiate in good
faith means that persons having the requisite competence and authority to
negotiate are available and ready to negotiate at the request of the other party
and includes the obligation to consider in good faith whether a commercially
reasonable arrangement should be negotiated and if so the terms on which such
arrangement should be made, which shall be negotiated at arm's length.
(d) References herein to a party shall mean either Chiron or CGL
unless the context otherwise requires. References herein to a third party shall
mean a person other than Chiron and CGL or their subsidiaries or affiliates.
ARTICLE II
RESEARCH AND DEVELOPMENT COLLABORATIONS
SECTION 2.01. GENERAL PRINCIPLES. (a) Chiron and CGL shall be the
preferred partners of each other in the areas of Modern Health Care Products and
related techniques and shall encourage programs to strengthen each other's
scientific strengths and capabilities where such collaboration is in their
respective best interests.
(b) CGL encourages Chiron to enter into extensive collaborations with
third parties in pursuit of its Strategic Mission. Accordingly, neither party's
position as the preferred collaborator of the other party shall in any way
prohibit such other party from collaborating with third parties or influence the
terms of any such collaboration.
SECTION 2.02. SCIENCE COMMITTEE. (a) The parties shall establish and
maintain a Science Committee composed of an equal number of senior executives
and
<PAGE>
5
scientists of Chiron and CGL. The members of the Science Committee will meet on
a periodic basis to exchange information initially on a non-confidential basis
regarding fields of research interest, strategic scientific and technical
plans, capabilities and opportunities of their respective companies and other
information that may lead to new opportunities, or enhance existing
opportunities, for the other party or for collaborative projects and ventures.
If mutually agreed, the parties may provide confidential information, subject
to agreement upon appropriate protection of the confidentiality of such
information. If opportunities of mutual interest are identified, the Scientific
Committee will propose mechanisms for converting such opportunities into actual
projects and ventures; PROVIDED, HOWEVER, that no information need be disclosed
(or may be requested by representatives of either party to be disclosed) in
meetings of the Science Committee that (i) is subject to then existing third
party rights and contractual obligations of the parties (ii) is necessary for
the perfection or protection of intellectual property (iii) in the reasonable
judgment of the disclosing party represents corporate opportunities; or (iv)
is the subject of then existing negotiation with third parties.
(b) The Science Committee may prepare proposals from time to time for
the parties regarding exchanges of scientists employed by the parties for
limited periods of time in furtherance of the cooperation and collaboration
purposes of this Agreement.
SECTION 2.03. ANNUAL SCIENTIFIC CONFERENCE. Each calendar year,
commencing with 1995, the parties shall jointly conduct a Scientific Conference
which shall be attended by key scientific personnel of each of the parties and
such other persons as the parties shall determine. Each Scientific Conference
shall be planned and supervised by the Science Committee, and the Science
Committee shall determine the location, length of time and nature of the
activities with respect thereto. Neither party shall be required to disclose any
information which it decides to treat as confidential.
SECTION 2.04. RESEARCH AND/OR DEVELOPMENT COLLABORATIONS. (a) In
furtherance of the general principles set forth in Section 2.01, if at any time
either party (the "Proposing Party") desires to pursue a collaboration regarding
a research and/or development project or activity with the other party (the
"Non-Proposing
<PAGE>
6
Party") in an area in which the Proposing Party has competence and has a
proposal to establish a research or development activity that will contribute
materially to the success of the collaboration, then the Proposing Party shall
deliver written notice to that effect to the Non-Proposing Party describing such
proposed project or activity in reasonable detail (a "Collaboration Proposal")
(but without the disclosure of any information the Proposing Party decides to
treat as confidential).
(b) For a period of 90 days following delivery of the written notice
referred to in Section 2.04(a) (or such longer or shorter period as the parties
may agree) (each, a "Collaboration Negotiation Period"), the parties shall
explore the nature and feasibility of the Collaboration Proposal and shall
negotiate in good faith regarding the terms of the Proposed Collaboration, and
shall not initiate discussions or negotiations with any third party or enter
into any agreement with any third party regarding such Collaboration Proposal
until the expiration of the applicable Collaboration Negotiation Period, subject
to the following provisions:
(i) If Non-Proposing Party concludes that a Collaboration Proposal is
overly-broad such that it interferes with the ability of the
Non-Proposing Party to promptly pursue a newly discovered opportunity,
then the Non-Proposing Party shall so inform the Proposing Party and
the two shall reasonably narrow the scope of the Collaboration
Proposal promptly and in any event within 15 days in a manner which
fairly reflects the interests and potential of the Collaboration
Proposal and the interests and needs for the Non-Proposing Party to
restrict the Collaboration Proposal.
(ii) The Non-Proposing Party shall have the right to decline immediately
and terminate the Collaboration Negotiation Period if the
Collaboration Proposal would infringe or violate any obligations of
the Non-Proposing Party to any third party.
(iii) In the event that, prior to receipt of the Collaboration Proposal,
the Non-Proposing Party has commenced and is continuing negotiations
with a third party with respect to matters which would
<PAGE>
7
be covered by the Collaboration Proposal, the Non-Proposing Party
agrees to consider the Collaboration Proposal in good faith, but shall
not have any obligation to delay the third party negotiations, and may
elect at any time to reject the Collaboration Proposal and conclude
the third party agreement.
(iv) Neither party shall be precluded from responding to and discussing
proposals initiated by third parties during the Collaboration
Negotiation Period, subject to the restriction on concluding
agreements set forth above.
(v) If, at the end of the Collaboration Negotiation Period, the parties
mutually agree to continue good faith negotiation regarding the
Collaboration Proposal, the Collaboration Negotiation Period shall be
extended for an additional 90 days, or such other period as the
parties shall mutually determine.
(c) After the expiration of such Collaboration Negotiation Period,
neither Party shall be restricted in any way under this Article IV from
discussing or negotiating with any person, or entering into any agreement,
regarding the applicable collaboration which was the subject of such
Collaboration Negotiation Period.
(d) Each Collaboration Proposal shall be reasonably specific and shall
not be so broad as to incorporate several different technologies, targets or
therapies, except where the Collaboration Proposal seeks to combine such
technologies, targets or therapies so as to form a rational basis for exploring
a new technology or product development idea. No Collaboration Proposal shall
be made within two years after the rejection of a Collaboration Proposal
containing the same subject matter as such rejected Collaboration Proposal. Each
party shall notify the other party of its first Collaboration Proposals within
one month after the Effective Date and thereafter as each party may elect.
Unless otherwise agreed, neither party shall submit more than five
Collaboration Proposals within any one year, PROVIDED, HOWEVER, that nothing in
this Article II shall restrict or impede the parties from exploring
collaborations with each other outside of the procedures of this Article II.
<PAGE>
8
(e) Nothing in this Section 2.04 shall require either party to violate
any contractual obligation owed to any third party with respect to any proposed
research and development collaboration.
SECTION 2.05. COMBINATORIAL CHEMISTRY COLLABORATION. The parties
contemplate that the first collaboration to be undertaken will be in the field
of combinatorial chemistry for the purpose of discovering new pharmaceutically
active compounds and/or significant pharmaceutical uses for existing compounds.
Accordingly, promptly after the execution hereof, the parties shall negotiate
in good faith regarding a strategic research and development collaboration in
the field of combinatorial chemistry. In addition, the parties shall explore
their interest in, and negotiate in good faith regarding, the granting to Chiron
of access to CGL's compound archives and libraries in connection with such
combinatorial chemistry collaboration.
SECTION 2.06. FUNDING COLLABORATION FIRST OFFER. Notwithstanding
anything herein to the contrary, in no event shall any party hereto enter into
any material research and development collaboration related to Chiron'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
hereto has first offered the other party hereto the opportunity to enter into
such collaboration on the same terms as such third party. The restrictions of
this Section 2.06 shall not apply to collaborations with non-commercial sources
of funding, including grants; nor shall it apply to financing arrangements with
third parties in which the consideration to the third party is the return on
financing, e.g. SWORD financing.
ARTICLE III
MARKETING AND DISTRIBUTION
SECTION 3.01. GENERAL PRINCIPLE. After the Effective Date, with
respect to each Modern Health Care Product, the Non-Developing Party thereof
will be the preferred and if the parties agree, the exclusive marketing and
distribution channel for any market category (territory, disease category,
customer group, etc.) ("Market Category") in which the Developing Party
determines not to market such
<PAGE>
9
Modern Health Care Product by itself unless a third party has a contractual
right to market and distribute such Modern Health Care Product in such Marketing
Category or the Non-Developing Party is not competent to market and distribute
such Modern Health Care Product in such Market Category. Without limiting the
foregoing, Chiron will be the preferred marketing channel for hospital-based
marketing and distribution, particularly for critical care and oncology
products, provided the parties understand and agree that Ciba will conduct
and/or develop its own marketing and distribution activities in these areas, as
it finds to be in its best interests.
SECTION 3.02. MARKETING RIGHT OF FIRST REFUSAL. (a) If at any time a
Developing Party decides to have a third party market, or assist in marketing, a
product of the Developing Party or to which the Developing Party has access
within one or more Market Categories, the Developing Party shall send written
notice to that effect (each, a "Marketing Information Notice") to the
Non-Developing Party, which notice shall contain the material terms on which the
Developing Party desires that such Modern Health Care Product be marketed in a
Market Category.
(b) For a period of 90 days following the receipt by the
Non-Developing Party of a Marketing Information Notice in accordance with
Section 3.02(a) (or such longer or shorter period as the parties may agree)
(each, a "Marketing Negotiation Period"), the parties shall negotiate in good
faith, regarding whether and on what terms the Non-Developing Party will
market and distribute the applicable Modern Health Care Product in the
applicable Market Category, PROVIDED, HOWEVER, that if the Non-Developing
Party has no interest in marketing such product, it shall promptly inform the
Developing Party of this fact, thereby terminating the Marketing Negotiation
Period. In the event that the parties have not reached agreement regarding
such terms during the Marketing Negotiation Period, the Non-Developing Party
shall, prior to the expiration thereof, deliver to the Developing Party a
proposal (a "Marketing Proposal") containing the material terms on which the
Non-Developing Party proposes to market and distribute such Modern Health
Care Product in such Market Category. If the Developing Party determines to
accept such Marketing Proposal, then it shall so notify the Non-Developing
Party and the parties shall promptly enter into a binding written agreement
containing the terms thereof. If the Developing Party determines not to
accept such Marketing Proposal, then
<PAGE>
10
it shall so notify the Non-Developing Party of its rejection thereof, whereupon
the Developing Party shall have the right to negotiate with (but not to disclose
the terms of the Marketing Proposal to) any third party, and enter into, an
agreement (a "Third Party Marketing Agreement") pursuant to which such third
party will participate in the marketing, distribution and/or sales of such
Modern Health Care Product in such Market Category; PROVIDED, HOWEVER, that
the Developing Party shall not enter into such Third Party Marketing Agreement,
and shall instead accept the applicable Marketing Proposal, unless the
Developing Party determines in good faith that the terms of such Third Party
Marketing Agreement, taken as a whole, are more favorable to the Developing
Party, than the terms of such applicable Marketing Proposal, taken as a whole,
recognizing the principle that the Non-Developing Party is the preferred partner
in all circumstances in which the proposals are roughly comparable.
(c) The Developing Party shall not enter into any agreement with any
person other than the Non-Developing Party, in each case with respect to the
marketing and development of any Modern Health Care Product referred to in
Section 3.02(a) in any Market Category referenced therein, until the expiration
of the applicable Marketing Negotiation Period and the delivery of notice to the
Non-Developing Party by the Developing Party of the Developing Party's rejection
of the applicable Marketing Proposal in accordance with Section 3.02(b).
SECTION 3.03. SUPERSEDING RIGHTS OF DEVELOPING PARTY. Notwithstanding
anything in Section 3.02 to the contrary, with respect to any Modern Health
Care Product, the Non-Developing Party shall have no rights and the Developing
Party shall have no obligations under such Section 3.02 with respect to
marketing and developing such Modern Health Care Product in any Market Category
under any of the following circumstances:
(a) if any third party has, or acquires at any time before product
development is substantially complete, a contractual right to market,
distribute and/or sell or participate in the determination of the marketing
and distribution plan for, such Modern Health Care Product in such Market
Category; or
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11
(b) if the Non-Developing Party is not competent to market and
distribute such Modern Health Care Product in such Market Category.
ARTICLE IV
MANUFACTURING
SECTION 4.01. GENERAL PRINCIPLE. (a) After the Effective Date, with
respect to each Modern Health Care Product, the Non-Developing Party thereof
will be the preferred manufacturer to the extent that the Developing Party
determines not to manufacture such Modern Health Care Product (or any
component thereof) by itself unless a third party has a contractual right to
manufacture such Modern Health Care Product or the Non-Developing Party is
not competent to manufacture such Modern Health Care Product.
(b) The parties will periodically exchange information concerning
their available manufacturing capacities, capabilities and requirements and
proposed capital investments in the area of manufacturing so as to avoid
duplication of investment and to plan for optimal utilization of their
manufacturing capacities, capabilities, and requirements, subject to any
obligations to third parties; PROVIDED FURTHER that neither party shall be
required to disclose any information where it believes such disclosure would
undermine its corporate strategy, compromise any third party confidential
information or prejudice its ability to pursue corporate opportunities on its
own.
SECTION 4.02. MANUFACTURING RIGHT OF FIRST NEGOTIATION. (a) In
furtherance of the general principle set forth in Section 4.01, if at any time a
Developing Party desires that a Modern Health Care Product (or any component
thereof) be manufactured on its behalf by another person, then such Developing
Party shall send written notice to that effect (each, a "Manufacturing
Information Notice") to the Non-Developing Party, which notice shall contain
the material terms on which the Developing Party desires that such Modern Health
Care Product (or such component) be manufactured on its behalf.
(b) For a period of 90 days following the receipt by the
Non-Developing Party of a Manufacturing Information Notice in accordance with
Section 4.02(a) (or such longer or
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12
shorter period as the parties may agree) (each, a "Manufacturing Negotiation
Period"), the parties shall negotiate in good faith regarding whether and on
what terms the Non-Developing Party will manufacture the applicable Modern
Health Care Product (or component thereof); PROVIDED, HOWEVER, that if the
Non-Developing Party has no interest in manufacturing such Modern Health Care
Product, it shall promptly so inform the Developing Party of this fact,
thereby terminating the Manufacturing Negotiation Period.
(c) The Developing Party shall not enter into any agreement with any
person other than the Non-Developing Party, in each case with respect to the
manufacturing of any Modern Health Care Product (or component thereof) referred
to in Section 4.03(a) until the earlier of (i) the expiration of the applicable
Manufacturing Negotiation Period or (ii) the time when the parties have agreed
not to pursue such manufacturing collaboration.
(d) After the expiration of such Manufacturing Negotiation Period, the
Developing Party shall not be restricted in any way under this Article IV from
discussing or negotiating with any person, or entering into any agreement,
regarding the Modern Health Care Product that was the subject of such
Manufacturing Negotiation Period.
SECTION 4.03. SUPERSEDING RIGHTS OF DEVELOPING PARTY. Notwithstanding
anything in Section 4.02 to the contrary, with respect to any Modern Health Care
Product (or component thereof), the Non-Developing Party shall have no rights
and the Developing Party shall have no obligations under such Section 4.02 with
respect to the manufacturing of such Modern Health Care Product (or component
thereof) under any of the following circumstances:
(a) if any third party has, or acquires at any time before product
development is substantially complete, a contractual right to manufacture,
or to participate in the determination of the manufacturing plan for, such
Modern Health Care Product (or component thereof) on behalf of the
Developing Party; or
(b) if the Non-Developing Party is not competent to manufacture such
Modern Health Care Product (or component thereof).
<PAGE>
13
SECTION 4.04. TANOX. If CGL requests, the parties shall negotiate in
good faith regarding the terms on which Chiron will manufacture monoclonal
antibodies arising from CGL's collaboration with Tanox.
ARTICLE V
ACCESS TO TECHNOLOGY
SECTION 5.01. CHIRON'S ACCESS TO CGL'S DEVELOPMENT COMPOUNDS. At
Chiron's request, CGL shall negotiate with Chiron in good faith regarding the
terms on which CGL shall provide Chiron with access (including development and
commercialization rights) to CGL's biotechnology and pharmaceutical development
compounds; PROVIDED, HOWEVER, that CGL shall have no obligation to provide
access or to negotiate with Chiron regarding the provision of access to any
compound (i) that is currently under active development by CGL, (ii) that CGL
has determined in good faith to reserve for development on its own, or (iii)
with respect to which CGL is contractually restricted from providing access to
Chiron and PROVIDED, further, that nothing in this Section 5.01 shall preclude
Chiron from making a Collaboration Proposal under Article II with regard to any
compound of CGL (other than those described in clause (iii)), all subject to the
requirements of Article II. From time to time, CGL will advise Chiron of the
compounds available under this Section 5.01, together with sufficient
information to reasonably evaluate its rights hereunder (but without the
disclosure of any information that CGL determines to treat as confidential).
SECTION 5.02. ACCESS TO TECHNICAL EXPERTISE AND KEY TECHNOLOGIES.
(a) Subject to Section 5.02(b), in the event that either party (a "Requesting
Party") reasonably requests the assistance of the other party (the
"Non-Requesting Party") in connection with a project of the Requesting Party,
then, subject to Section 5.02(b), the Non-Requesting Party shall explore and
attempt in good faith to render such assistance. If the parties agree, such
assistance may include access to Intellectual Property of the Requesting
Party upon commercially reasonable terms (including compensation to the
Non-Requesting Party through a royalty on any products resulting from such
access or in such other form as the parties may agree).
<PAGE>
14
(b) The rights of a Requesting Party with respect to any requested
Intellectual Property shall be subject to the following:
(i) the Non-Requesting Party shall not be required to enter into such
agreement or provide any such access if in its good faith judgment the
provision of such access would materially impair or disadvantage any
then-existing business strategy of such Non-Requesting Party, including,
without limitation, impairment of or disadvantage to any project of the
Non-Requesting Party then existing or planned in good faith for the future,
or any strategy of the Non-Requesting Party with respect to the licensing
or exclusive retention for internal use of the requested technology;
(ii) the Non-Requesting Party shall have no obligation to provide
access or assistance under this Section 5.03 if in its good faith judgment
such action would violate any rights of third parties in or to the
applicable Intellectual Property pursuant to contracts entered into or
under negotiation by the Non-Requesting Party prior to the day on which
access to such Intellectual Property was requested by the Requesting Party;
(iii) the Non-Requesting Party shall have no obligations to provide
access under Section 5.03 to requested Intellectual Property if in the good
faith judgment of the Non-Requesting Party such access would adversely
affect its competitive position;
(iv) the Requesting Party shall use any such requested Intellectual
Property only in connection with the project that is the subject of the
applicable request, and shall have no right to assign, license, sublicense
or otherwise transfer any rights in or to such requested Intellectual
Property to any third party; and
(v) the Non-Requesting Party shall, except as provided in a Technology
Access Agreement or as otherwise agreed by the parties, retain all rights
to (A) use any such requested Intellectual Property and (B) assign,
license, sublicense and otherwise transfer to third parties any such
requested Intellectual Property.
<PAGE>
15
ARTICLE VI
OUT-LICENSING MFN
SECTION 6.01. MOST FAVORED NATION STATUS FOR LICENSING OF
TECHNOLOGIES. Notwithstanding anything herein to the contrary, to the extent
that either party after the Effective Date decides to make any Modern Health
Care Intellectual Property or any Modern Health Care Product generally
available to third parties for licensing on a non-exclusive basis, such party
shall, at the option and request of the other party, license or grant such
rights in or to such Modern Health Care Intellectual Property or Modern
Health Care Product to such other party on terms that are no less favorable
to such other party than the terms on which such Modern Health Care
Intellectual Property or Modern Health Care Product is licensed or made
available to the most favored third party.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. EFFECTIVE DATE. This Agreement shall become effective as
of the time of the Closing (as defined in the Investment Agreement) (the
"Effective Date").
SECTION 7.02. TERMINATION. This Agreement shall terminate upon the
first to occur of the following: (i) after the Effective Date CGL and its
affiliates beneficially own less than 30% of the Company's Voting Stock or (ii)
the parties shall have mutually agreed in writing to terminate this Agreement;
PROVIDED, HOWEVER, that all manufacturing, marketing and research
collaboration arrangements and agreements entered into hereunder, and all
rights and obligations arising under such arrangements and agreements, shall
continue in accordance with the terms thereof.
SECTION 7.03. NOTICES. All notice, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
cable, facsimile transmission, telegram or telex or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as
<PAGE>
16
shall be specified in a notice given in accordance with this Section 7.04):
If to CGL, to:
Ciba Geigy Limited
CH-4002
Basle, Switzerland
Attention: Dr. Martin Kuhn
Facsimile: 41-61-6964898
with a copy to:
Ciba Geigy Limited
CH 4002
Basle Switzerland
Attention: Dr. Herbert Gut
Facsimile: 41-61-6965419
If to Chiron, to:
Chiron Corporation
4560 Horton Street
Emeryville, CA 94563
Attention: President
Facsimile: (510) 655-3282
with a copy to:
Attention: General Counsel
Facsimile: (510) 654-5360
SECTION 7.04. AMENDMENTS; WAIVERS. (a) No provision of this
Agreement may be amended or waived unless such amendment or waiver is in writing
and signed, in the case of an amendment, by the parties hereto, or in the case
of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise
<PAGE>
17
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
(c) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 7.05. SEVERABILITY. If any term or provision of this Agreement
or the application thereof to either party or set of circumstances shall, in any
jurisdiction and to any extent, be finally held invalid or unenforceable, such
term or provision shall only be ineffective as to such jurisdiction, and only to
the extent of such invalidity or unenforceability, without invalidating or
rendering unenforceable any other terms or provisions of this Agreement or under
any other circumstances, and the parties shall negotiate in good faith a
substitute provision which comes as close as possible to the invalidated or
unenforceable term or provision, and which puts each party in a position as
nearly comparable as possible to the position it would have been in but for the
finding of invalidity or unenforceability, while remaining valid and
enforceable.
SECTION 7.06. ENTIRE AGREEMENT; ASSIGNMENT. (a) This Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and undertakings, both
written and oral, between the parties hereto with respect to the subject matter
hereof.
(b) None of the parties to this Agreement shall assign any of its
rights or obligations hereunder without the prior written consent of the other
parties hereto, except that either party may assign all or any of its rights
and obligations hereunder to any of its wholly owned subsidiaries, which agree
to be bound by the terms of this agreement; PROVIDED that no such assignment
shall relieve either part of its obligations hereunder.
<PAGE>
18
SECTION 7.07. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person, other than the parties hereto and their respective permitted successors
and assigns, any right, benefit or remedy of any nature or kind whatsoever under
or by reason of this Agreement.
SECTION 7.08. SPECIFIC PERFORMANCE. The parties hereto recognize and
agree that immediate irreparable damages for which there is no adequate remedy
at law would occur in the event that any provision of this Agreement is not
performed in accordance with the specific terms hereof or is otherwise breached.
It is accordingly agreed that in the event of a failure by a party to perform
its obligations under this Agreement, the non-breaching party shall be entitled
to specific performance through injunctive relief to prevent breaches of the
provisions of this Agreement and to enforce specifically the provisions of this
Agreement in any action instituted in any court having subject matter
jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity.
SECTION 7.09. GOVERNING LAW; JURISDICTION. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed and to be fully performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall be
brought by the parties and heard and determined only in a Delaware state court
or a federal court sitting in that State and the parties hereto consent to
jurisdiction before and waive any objections to the jurisdiction of any such
court.
SECTION 7.10. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same agreement.
SECTION 7.11. WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort, or otherwise) arising out of or
relating to this Agreement or the actions of any of them in the negotiation,
administration, performance and enforcement hereof.
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19
SECTION 7.12. RELATIONSHIP OF THE PARTIES. The parties hereto are
independent contractors under this Agreement. Nothing contained in this
Agreement is intended, and should not be construed so as, to constitute Chiron
and CGL as partners or joint venturers with respect to this Agreement or the
subject matter hereof.
<PAGE>
20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CHIRON CORPORATION,
By /s/ William J. Rutter
----------------------------------------
Name:
Title:
CIBA-GEIGY LIMITED
/s/ Alex Krauer
----------------------------------------
/s/ John Cheesmond
----------------------------------------
<PAGE>
Exhibit 10.705
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT dated as of November 20,
1994, between CIBA BIOTECH PARTNERSHIP, INC. (the
"Shareholder"), a Delaware corporation and an indirect
wholly owned subsidiary of CIBA-GEIGY LIMITED, a Swiss
corporation ("Ciba"), and CHIRON CORPORATION, a Delaware
corporation (the "Company").
WHEREAS the respective Boards of Directors of the Shareholder and the
Company have approved the acquisition of a minority interest in outstanding
shares of Common Stock of the Company by Shareholder on certain terms and
subject to certain conditions set forth in the Investment Agreement dated as of
the date hereof (the "Investment Agreement") among Ciba, Ciba-Geigy Corporation,
a New York Corporation ("CCorp"), the Shareholder and the Company;
WHEREAS the Shareholder or an affiliate thereof may from time to time
hereafter acquire additional securities of the Company in accordance with the
terms of the Ancillary Agreements (as defined in the Investment Agreement); and
WHEREAS the parties desire to set forth the terms and conditions
relating to the sale by means of public
<PAGE>
2
offerings of securities of the Company owned by the Shareholder.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, in the Investment Agreement and in the other Ancillary
Agreements, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows.
1. REGISTRATION RIGHTS. (a) REGISTRATION. If the Shareholder shall, at
any time and from time to time, request the Company in writing to register under
the Securities Act of 1933 (the "Act") any Securities held by it (whether for
purposes of a public offering, an exchange offer or otherwise), the Company
shall use all reasonable efforts to cause the prompt registration of all
Securities specified in such request, and in connection therewith shall prepare
and file on such appropriate form as the Company, in its reasonable discretion,
shall determine, a registration statement under the Act to effect such
registration and shall take such actions as shall be necessary or appropriate,
in the Company's reasonable discretion, to have such Securities listed or
approved for trading on any securities exchange or through any facility on which
or through which Securities of such class are already traded.
<PAGE>
3
The Company agrees that no other holder of any securities of the Company to
which registration rights are attached ("Registrable Securities") shall be
entitled to include Registrable Securities in such registration if inclusion of
such Registrable Securities could reduce the number of Shares to be sold by
Shareholder in such registration.
(b) WRITTEN NOTICE. Any request by the Shareholder pursuant to
paragraph (a) of this Section 1 shall (i) specify the number and class of shares
of Securities which the Shareholder intends to offer and sell, (ii) express the
intention of the Shareholder to offer or cause the offering of such Securities,
(iii) describe the nature or method of the proposed offer and sale thereof and
state whether such offer shall be made domestically or abroad, or both, and, if
abroad, the country or countries in which such offer shall be made, (iv) contain
the undertaking of the Shareholder to provide all such information regarding its
holdings and the proposed manner of distribution thereof as may be required in
order to permit the Company to comply with all applicable laws and regulations,
foreign or domestic, including all requirements of the Securities and Exchange
Commission (the "SEC"), any other applicable United States or foreign regulatory
or self-regulatory body and any other body having jurisdiction and any
securities exchange
<PAGE>
4
or trading facility on which or through which the Securities are to be listed or
traded and to obtain acceleration of the effective date of any registration
statement filed in connection therewith and (v) in the case of an underwritten
public offering made domestically or abroad, or both, specify the managing
underwriter or underwriters of such Securities, which shall be selected by the
Shareholder and shall be reasonably acceptable to the Company.
(c) CONDITION TO EXERCISE OF RIGHTS. The obligations of the Company
under paragraph (a) of this Section 1 shall be subject to the limitations that
the Company shall not be obligated to register, take other specified actions
with respect to, or cooperate in the offering of, Securities upon the request of
the Shareholder, (i) more than once in any 12-month period and (ii) unless, in
the case of a class of equity Securities, the number of shares specified in such
request pursuant to Section l(b)(i) shall be greater than 5% of the total number
of shares of such class at the time issued and outstanding. Notwithstanding the
foregoing, the failure of the Shareholder to own the minimum number or percent
of Securities referred to in the preceding sentence at any time shall not affect
the ability of the Shareholder to exercise
<PAGE>
5
its rights under this Agreement at any subsequent time when the Shareholder
again owns such minimum number or percent.
(d) Notwithstanding the foregoing, if the Company initiates a
registration statement pursuant to this Section 1 and furnishes to the
Shareholder a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore desirable to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 60 days after receipt
of the request of the Shareholder; provided, however, that the Company may not
utilize this right more than once in any twelve month period.
(e) INCIDENTAL REGISTRATION. If the Company shall at any time propose
an underwritten offering for cash of any Securities, whether pursuant to a
registration statement under the Act or otherwise, the Company shall give
written notice as promptly as practicable of such proposed registration or
offering to the Shareholder and shall use all reasonable efforts to include in
such offering and, if such offering is pursuant to a registration statement
under
<PAGE>
6
the Act, in such registration, any of the same class of such Securities held by
the Shareholder as the Shareholder shall request within 20 calendar days after
the giving of such notice, upon the same terms (including the method of
distribution) as such offering; PROVIDED, HOWEVER, that (i) the Company shall
not be required to give such notice or include any such Securities in any
offering pursuant to a registration statement filed on Form S-8 or Form S-4 (or
such other form or forms as shall be prescribed under the Act for the same
purposes) or any registration statement for a dividend reinvestment or employee
stock purchase plan and (ii) the Company may at any time prior to the
effectiveness of any such registration statement or commencement of any such
offering not pursuant to a registration statement, in its sole discretion and
without the consent of the Shareholder, abandon the proposed offering in which
the Shareholder had requested to participate. Notwithstanding the foregoing, the
Company shall not be obligated to include such Securities in such offering if
the Company is advised in writing by its managing underwriter or underwriters
that such offering would in its or their opinion be materially adversely
affected by such inclusion; PROVIDED, HOWEVER, that the Company shall in any
case be obligated to include such number or amount of Securities in such
offering as such
<PAGE>
7
managing underwriter or underwriters shall determine will not materially
adversely affect such offering. Notwithstanding any other provisions of this
Section 1(e), if the underwriter advises the holders of Registrable Securities,
including the Shareholder, in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the number of shares
of securities that may be included in the underwriting shall be allocated among
all holders of Registrable Securities, including the Shareholder, electing to be
included in such underwriting, in proportion (as nearly as practicable) to the
amount of Registrable Securities owned by each holder; PROVIDED, HOWEVER, that
the number of shares of Securities of the Shareholder to be included in such
underwriting shall not be reduced unless all other securities issued after the
date hereof to which registration rights attach are first entirely excluded from
the underwriting.
2. COVENANTS OF THE COMPANY. In connection with any offering of
Securities pursuant to this Agreement, the Company shall:
(a) furnish to the Shareholder such number of copies of any prospectus
(including any preliminary prospectus), registration statement, offering
memorandum or other offering document (including any
<PAGE>
8
exhibits thereto or documents referred to therein) as the Shareholder may
reasonably request and a copy of any and all transmittal letters or other
correspondence with the SEC or any other governmental agency or
self-regulatory body or other body having jurisdiction (including any
securities exchange or trading facility) relating to such offering of
Securities;
(b) take such reasonable action as may be necessary to qualify such
Securities for offer and sale under the securities, "blue sky" or other
similar laws of such jurisdictions (including any foreign country or
political subdivision thereof) as the Shareholder or any underwriter shall
request;
(c) enter into an underwriting agreement (or equivalent document in
any foreign jurisdiction) containing representations, warranties,
indemnities, contribution provisions and agreements then customarily
included by an issuer in underwriting agreements (or such equivalent
documents) in the form customarily used by the lead underwriter with
respect to secondary distributions;
(d) furnish unlegended certificates representing ownership of the
Securities being sold in such
<PAGE>
9
denominations as shall be requested by the Shareholder or the lead
underwriter;
(e) instruct the transfer agent and registrar to release any stop
transfer orders with respect to the equity Securities being sold;
(f) promptly inform the Shareholder (i) in the case of any domestic
offering of Securities in respect of which a registration statement is
filed under the Act, of the date on which such registration statement or
any post-effective amendment thereto becomes effective (and, in the case of
an offering abroad of Securities, of the date when any required filing
under the securities and other laws of such foreign jurisdictions shall
have been made and when the offering may be commenced in accordance with
such laws) and (ii) of any request by the SEC, any securities exchange,
government agency, self-regulatory body or other body having jurisdiction
for any amendment of or supplement to any registration statement or
preliminary prospectus or prospectus included therein or any offering
memorandum or other offering document relating to such offering;
(g) upon any registration statement becoming effective pursuant to any
registration under the Act
<PAGE>
10
pursuant to this Agreement, file any necessary amendments or supplements to
such registration statement and otherwise use its best efforts to keep such
registration statement current for such period as the Shareholder shall
request not to exceed nine months;
(h) take such reasonable actions as may be necessary to have such
Securities listed on or traded through the securities exchange or trading
facility on which securities of the Company are then listed or traded;
(i) promptly notify the Shareholder of the happening of any event as a
result of which any registration statement or any preliminary prospectus or
prospectus included therein or any offering memorandum or other offering
document includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and prepare and furnish to the Shareholder as many copies of a
supplement to or amendment of such offering document which shall correct
such untrue statement or eliminate such omission, as the Shareholder shall
request;
<PAGE>
11
(j) take such other actions and execute and deliver such other
documents as may be necessary or reasonably requested by the Shareholder in
order to give full effect to the rights of the Shareholder under this
Agreement.
3. EXPENSES. (a) In connection with the first two exercises by the
Shareholder of its rights under Section 1(a), the Company shall pay all expenses
incurred in complying with Section 1(a) hereof, including, without limitation,
all registration and filing fees (including all expenses incident to any filing
with the National Association of Securities Dealers, Inc. or listing on or
approval for trading through any securities exchange or trading facility), fees
and expenses of complying with securities and "blue sky" laws (including those
of counsel retained to effect such compliance), printing expenses and any stamp,
duty or transfer tax (collectively "Registration Expenses"). In connection with
each subsequent exercise by the Shareholder of his rights under Section 1(a),
the Shareholder shall pay all of the Registration Expenses. Notwithstanding the
foregoing (i) Shareholder shall pay all (x) underwriting discounts and
commissions and printing expenses, (ii) the Company shall pay the fees and
disbursements of its independent public accountants
<PAGE>
12
(including any such fees and expenses incurred in performing any special audits
required in connection with any such offering and incurred in connection with
the preparation of pro forma financial statements and comfort letters for any
such offering), and (iii) each party shall pay the fees and expenses of its
counsel.
(b) All expenses incurred in complying with Section 1(e) hereof,
including, without limitation, any Registration Expenses, shall be paid by the
Company, except that (i) Shareholder shall pay all underwriting discounts,
commissions and expenses specifically attributable to the inclusion in the
offering under said Section 1(e) of the Securities being sold by Shareholder and
(ii) each party shall pay the fees and expenses of its counsel.
4. INDEMNIFICATION. (a) COMPANY INDEMNITY. In the case of any offering
or sale of Securities covered by this Agreement, the Company shall indemnify and
hold harmless the Shareholder, and each person affiliated with or retained by
the Shareholder and who may be subject to liability under any applicable foreign
securities laws, against any and all losses, claims, damages or liabilities to
which they or any of them may become subject under the Act or any other statute
or common law of the United States of America or any other country or political
subdivision
<PAGE>
13
thereof, or otherwise, including any amount paid in settlement of any litigation
commenced or threatened (including any amounts paid pursuant to or in settlement
of claims made under the indemnification or contribution provisions of any
underwriting or similar agreement entered into by the Shareholder in connection
with any offering or sale of Securities covered by this Agreement), and
shall promptly reimburse them, as and when incurred, for any legal or other
expenses incurred by them in connection with investigating any claims and
defending any actions, insofar as any such losses, claims, damages, liabilities
or actions shall arise out of or shall be based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement (or in any preliminary or final prospectus included therein) or in any
offering memorandum or other offering document relating to the offering and sale
of such Securities, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or any violation or alleged violation by the Company of
the Act, any "blue sky" laws, securities laws or other applicable laws of any
jurisdiction relating to any actual or alleged action or inaction required of
the Company in connection with such offering; PROVIDED, HOWEVER,
<PAGE>
14
that the indemnification agreement contained in this Section 4(a) shall not
apply to such losses, claims, damages, liabilities or actions to the extent that
such losses, claims, damages, liabilities or actions shall arise out of or
shall be based upon any such untrue statement or alleged untrue statement or any
such omission or alleged omission that shall have been made in reliance upon and
in conformity with information identified in writing by the Company or the
Shareholder as concerning the Shareholder and its security holdings in the
Company and so identified for use in connection with the preparation of the
registration statement or any preliminary prospectus or prospectus contained in
the registration statement, any offering memorandum or other offering document,
or any amendment thereof or supplement thereto. Notwithstanding the foregoing,
no underwriter or selling or placement agent shall be entitled to
indemnification under this Agreement if such person shall have entered into a
separate underwriting, agency or indemnification agreement with the Company that
pertains to the same transaction.
(b) SHAREHOLDER INDEMNITY. In the case of each offering or sale of
Securities covered by this Agreement, the Shareholder shall, in the same manner
and to the same extent as set forth in paragraph (a) of this Section 4,
<PAGE>
15
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of Section 15 of the Act, and each person
affiliated with or retained by the Company and who may be subject to liability
under any applicable foreign securities laws, its directors and those officers
of the Company who shall have signed any registration statement, offering
memorandum or other offering document with respect to any statement in or
omission from such registration statement, any preliminary prospectus or
prospectus contained in such registration statement or from such offering
memorandum or other offering document, as amended or supplemented, if such
statement or omission shall have been made in reliance upon and in conformity
with information identified in writing by the Company or the Shareholder as
concerning the Shareholder and its security holdings in the Company and so
identified for use in connection with the preparation of such registration
statement, any preliminary prospectus or prospectus contained in such
registration statement, any offering memorandum or other offering document, or
any amendment thereof or supplement thereto.
(c) PROCEDURE FOR INDEMNIFICATION. Each party indemnified under
paragraph (a) or (b) of this Section 4, or under Section 7(f) hereof, shall,
promptly after receipt of
<PAGE>
16
notice of the commencement of any action against such indemnified party in
respect of which indemnity may be sought, notify the indemnifying party in
writing of the commencement thereof. The omission of any indemnified party so to
notify an indemnifying party of any such action shall not relieve the
indemnifying party from any liability in respect of such action which it may
have to such indemnified party on account of the indemnity agreement contained
in paragraph (a) or (b) of this Section 4, or under Section 7(f) hereof, except
to the extent that the indemnifying party was prejudiced by such omission, and
in no event shall relieve the indemnifying party from any other liability which
it may have to such indemnified party. In case any such action shall be brought
against any indemnified party and such indemnified party shall notify an
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party. If the
indemnifying party so assumes the defense thereof, it may not agree to any
settlement of any such action as the result of which any remedy or relief, other
than monetary damages for which the indemnifying party shall be responsible
<PAGE>
17
hereunder, shall be applied to or against the indemnified party, without the
prior written consent of the indemnified party. If the indemnifying party does
not assume the defense thereof, it shall be bound by any settlement to which the
indemnified party agrees, irrespective of whether the indemnifying party
consents thereto. If any settlement of any claim is effected by the indemnified
party prior to commencement of any action relating thereto, the indemnifying
party shall be bound thereby only if it has consented in writing thereto. In any
action hereunder, the indemnified party shall continue to be entitled to
participate in the defense thereof, with counsel of its own choice, even if the
indemnifying party has assumed the defense thereof, provided that the
indemnifying party shall be relieved of the obligation hereunder to reimburse
the indemnified party for the costs thereof, if the indemnifying party has so
assumed the defense thereof.
5. REGISTRATION RIGHTS OF THIRD PERSONS. The Company shall not grant
any registration rights or other rights similar to the rights granted hereunder
if such grant would in any way limit the Shareholder's rights hereunder,
including with respect to any reduction in the number of Securities that may be
included by the Shareholder in an offering made pursuant to Section 1(e).
<PAGE>
18
6. TERMINATION OF OBLIGATIONS. Section 1 of this Agreement shall
terminate and cease to be of any force and effect at such time as the
Shareholder shall have the right to freely sell and transfer all the shares of
Common Stock of the Company held at such time by the Shareholder.
7. CERTAIN AGREEMENTS AND DEFINITIONS. (a) CALCULATION OF AMOUNTS.
For purposes of this Agreement, the amount of any Securities outstanding at
any time (and the amount of any Securities then beneficially owned by the
Shareholder or any other person) shall be calculated on the basis of the
information contained in the Company's most recent report filed with the SEC.
For purposes of calculating the amount of Securities outstanding at any time
(and the amount of Securities then beneficially owned by the Shareholder or
any other person) all outstanding securities convertible into or exchangeable
for such Securities shall be deemed to have been fully converted at such time.
(b) "PERSON"; "AFFILIATE". As used in this Agreement, the term
"person" shall have the meaning ascribed thereto in the Investment Agreement. As
used in this Agreement, the term "affiliate" shall mean, with respect to any
specified person, any other person that directly, or indirectly through one or
more intermediaries, controls, or
<PAGE>
19
is controlled by, or is under common control with, such specified person.
(c) "SECURITIES". As used in this Agreement, the term "Securities"
shall include any Common Stock of the Company now owned or hereafter acquired,
pursuant to the Investment Agreement, any Ancillary Agreement or otherwise, by
the Shareholder, whether acquired in any transaction with the Company or another
person, in any recapitalization of the Company, as a dividend or other
distribution, as a result of any "split" or "reverse split", upon conversion or
exercise of another security of the Company or any other person, or otherwise;
PROVIDED, HOWEVER, that the term "Securities" shall not include any security of
the Company acquired by the Shareholder in violation of an express covenant of
the Shareholder contained in any Ancillary Agreement PROVIDED, HOWEVER, that in
the event that convertible securities are issued by the Company to the
Shareholder in accordance with the Governance Agreement, then the parties shall
promptly amend this Agreement to reflect that such convertible securities are
included within the term "Security", with other corresponding modifications
hereto.
(d) STOCK BOOKS. Except as otherwise provided by law for all holders
of securities, the Company will not
<PAGE>
20
close its stock books or other registries against the transfer of any Security
held by the Shareholder.
(f) SECURITIES EXCHANGE ACT OF 1934. The Company shall at all times
timely file such information, documents and reports as the SEC may require or
prescribe under the Securities Exchange Act of 1934 (the "Exchange Act") and
shall provide the Shareholder with two copies of each thereof or any other
communication with or from the SEC. The Company shall, whenever requested by the
Shareholder, notify the Shareholder in writing whether the Company has, as of
the date specified by the Shareholder, complied with the Exchange Act reporting
requirements to which it is subject for such period to such date as shall be
specified by the Shareholder. The Company acknowledges and agrees that one of
the purposes of the requirements contained in this Section 7(f) is to enable the
Shareholder to comply with the current public information requirements contained
in Paragraph (c) of Rule 144 under the Act (or any corresponding rule hereafter
in effect) should the Shareholder ever wish to dispose of any Securities without
registration under the Act in reliance upon Rule 144.
(g) LISTING. Once initially listed or approved for trading, the
Company shall maintain in effect any listing of Securities on the securities
exchange or trading
<PAGE>
21
facility on which Securities of the Company are listed or traded, shall make all
filings and take all other actions required under the rules of such exchange or
facility and any applicable agreement, shall provide the Shareholder with two
copies of each such filing or any other communication with such exchange or
facility at the time at which such filing is made, and shall notify the
Shareholder of any proceeding or other action taken by such exchange or facility
or any other person which might have the effect of terminating or otherwise
changing the status of such listing, forthwith upon the occurrence thereof.
Notwithstanding the foregoing, the Company shall be entitled at any time to
terminate any securities exchange listing or approval for trading through any
trading facility for the entirety of any class of Securities.
(h) LIMITATION ON SALES OF SECURITIES BY SHAREHOLDER. (i) In case of
any registration, offering or sale contemplated by paragraph (a) of Section 1,
the Company shall not include in such registration, offering or sale any
Securities other than those beneficially owned by the Shareholder, and in case
of any registration, offering or sale contemplated by paragraph (d) of Section
1, the Company shall not include in such registration, offering or sale any
<PAGE>
22
Securities other than those being offered by the Company and the Shareholder.
(i) Shareholder shall use reasonable efforts to sell, and shall use
all reasonable efforts to cause any underwriter retained by it to sell
securities on a widely dispersed basis and not to sell securities to any person
known to beneficially own 5% or more of the Company's outstanding voting
securities.
(j) "MARKET STAND-OFF" AGREEMENT. Shareholder hereby agrees that,
during the 180 day period following the effective date of a registration
statement of the Company filed under the Act, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by it
at any time during such period except Common Stock included in such
registration. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
shareholder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
<PAGE>
23
8. MISCELLANEOUS. (a) SEVERABILITY. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such which may be hereafter declared
invalid, void or unenforceable.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be fully performed therein. All actions and proceedings
arising out of or relating to this Agreement shall be brought by the parties and
heard and determined only in a Delaware state court or a federal court sitting
in that state and the parties hereto consent to jurisdiction
<PAGE>
24
before and waive any objections of venue to the Delaware Chancery Court.
(c) FURTHER ASSURANCES. Subject to the specific terms of this
Agreement, each of the Shareholder and the Company shall make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as may be reasonably required in order to effectuate the purposes
of this Agreement and to consummate the transactions contemplated hereby.
Subject to the specific terms of this Agreement, each of the Shareholder and the
Company shall, in connection with entering into this Agreement, performing its
obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority and promptly provide the other with all such information as the other
may reasonably request in order to be able to comply with the provisions of this
sentence.
(d) PARTIES IN INTEREST. Except as herein otherwise specifically
provided, nothing in this Agreement expressed or implied is intended or shall be
construed to confer any right or benefit upon any person, firm or corpo-
<PAGE>
25
ration other than the Shareholder and the Company and their respective
successors and permitted assigns.
(e) WAIVERS, ETC. No failure or delay on the part of the Shareholder
or the Company in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. No modification or waiver of any provision of this
Agreement nor consent to any departure by the Shareholder or the Company
therefrom shall in any event be effective unless the same shall be in writing,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
(f) CHANGES OF LAW. If, due to any change in applicable law or
regulations or the interpretation thereof by any court of law or other
governing body having jurisdiction subsequent to the date of this Agreement,
performance of any provision of this Agreement or any transaction
contemplated hereby shall become impracticable or impossible, the parties
hereto shall use their best efforts to find and employ an alternative means
to achieve
<PAGE>
26
the same or substantially the same result as that contemplated by such
provision.
(g) CONFIDENTIALITY. Subject to any contrary requirement of law and
the right of a party to enforce its rights hereunder in any legal action, each
party shall keep strictly confidential and shall cause its employees and agents
to keep strictly confidential, any information which it or any of its agents or
employees may acquire pursuant to, or in the course of performing its
obligations under, any provision of this Agreement; PROVIDED, HOWEVER, that such
obligations to maintain confidentiality shall not apply to information which (i)
at the time of disclosure was in the public domain not as a result of acts by
the receiving party or (ii) was in the possession of the receiving party at the
time of disclosure.
(h) ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties with respect to the transactions contemplated hereby.
(i) HEADINGS. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provision of this
Agreement.
(j) COUNTERPARTS. For the convenience of the parties, any number of
counterparts of this Agreement may be executed by the parties hereto, and each
such executed
<PAGE>
27
counterpart shall be, and shall be deemed to be, an original instrument.
(k) NOTICES. All notices, consents, requests, instructions, approvals
and other communications provided for herein shall be validly given, made or
served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid, to the parties at the addresses set forth in
Section 7.02 of the Investment Agreement or to such other address as any party
may, from time to time, designate in a written notice given in a like manner.
Notice given by telegram shall be deemed delivered when received by the
recipient. Notice given by mail as set out above shall be deemed delivered five
calendar days after the date the same is mailed.
<PAGE>
28
IN WITNESS WHEREOF, the Shareholder and the Company have duly executed
this Agreement as of the day and year first above written.
CHIRON CORPORATION,
by /s/ William J. Rutter
--------------------------------------
Name:
Title:
CIBA BIOTECH PARTNERSHIP, INC.,
by /s/ McGraw
--------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.706
EXECUTION COPY
MARKET PRICE OPTION AGREEMENT dated as of
November 20, 1994 (this "Agreement"), by and among
CIBA-GEIGY LIMITED, a Swiss corporation ("Ciba"),
CIBA-GEIGY CORPORATION, a New York corporation ("C
Corp"), CIBA BIOTECH PARTNERSHIP, INC., a Delaware
corporation and an indirectly wholly owned subsidiary of
Ciba ("Purchaser"), and CHIRON CORPORATION, a Delaware
corporation (the "Company").
WHEREAS Ciba, C Corp, Purchaser and the Company have entered into the
Investment Agreement dated as of the date hereof (the "Investment Agreement");
WHEREAS each of Ciba, Holdings and the Company have each determined to
engage in the transactions contemplated by the Investment Agreement pursuant to
which transactions Ciba initially will own a minority interest of the then
outstanding shares of Common Stock of the Company ("Common Stock");
WHEREAS the parties to the Investment Agreement contemplate that
capital share issuances after the Closing under the Investment Agreement may
dilute Ciba's percentage ownership of the Company and that Ciba will have the
right, in accordance with the Governance Agreement, to increase its ownership
percentage in the Company; and
WHEREAS as a condition to their willingness to enter into the
Investment Agreement, Ciba, C Corp and Purchaser wish to assure that despite
such dilution Ciba can restore its ownership position in the Company by
purchasing additional shares of Common Stock from the Company and that Ciba may
so increase its ownership percentage in the Company, upon the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, to implement the foregoing and in consideration of the
mutual agreements contained herein and for other consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
<PAGE>
2
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
"AFFILIATE" has the meaning assigned to such term in the Governance
Agreement.
"ANCILLARY AGREEMENTS has the meaning assigned to such term in the
Investment Agreement.
"CIBA'S PERCENTAGE INTEREST" has the meaning assigned to such term in
the Governance Agreement.
"CLOSING" has the meaning assigned to such term in the Investment
Agreement.
"COMMON STOCK" has the meaning assigned to such term above.
"EQUITY SECURITY" has the meaning assigned to such term in the
Governance Agreement.
"EXERCISE CLOSING" has the meaning assigned to such term in Section
2.02(b).
"EXERCISE CLOSING DATE" has the meaning assigned to such term in
Section 2.02(b).
"EXERCISE CONDITION" has the meaning assigned to such term in Section
2.02(a).
"EXERCISE DATE" has the meaning assigned to such term in Section
2.02(a).
"FAIR MARKET VALUE" means, as of any date of determination, the
average of the closing sale prices of shares of Common Stock during the 10-day
period immediately preceding such date of determination on the principal United
States securities exchange registered under the Exchange Act on which shares of
Common Stock are listed or, if shares of Common Stock are not listed on any such
exchange, the average of the closing sale prices or the closing bid quotations
of shares of Common Stock during the 10-day period preceding such date of
determination on the Nasdaq
<PAGE>
3
National Market or any comparable system then in use or, if no such quotations
are available, the fair market value of shares of Common Stock as of such date
of determination as determined in good faith by a majority of the Independent
Directors.
"GOVERNANCE AGREEMENT" means the Governance Agreement dated as of the
date hereof among Ciba, C Corp and the Company.
"HSR ACT" has the meaning assigned to such term in the Investment
Agreement.
"INVESTMENT AGREEMENT" has the meaning assigned to such term above.
"OFFER" has the meaning assigned to such term in the Investment
Agreement.
"OPTION" has the meaning set forth in Section 2.01.
"PERSON" has the meaning assigned to such term in the Governance
Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the date hereof, by and among Ciba, C Corp, Purchaser and
the Company.
"SECURITIES ACT" has the meaning assigned to such term in the
Governance Agreement.
"SHARES" has the meaning set forth in Section 2.01.
"STANDSTILL PERIODS" has the meaning assigned to such term in the
Governance Agreement.
"SUBSIDIARY" has the meaning assigned to such term in the Governance
Agreement.
"TOTAL VOTING POWER" has the meaning assigned to such term in the
Governance Agreement.
"VOTING STOCK" has the meaning assigned to such term in the Governance
Agreement.
<PAGE>
4
SECTION 1.02. INTERPRETATION. The rules of interpretation set forth in
Section 7.04 of the Investment Agreement shall apply to this Agreement, and the
provisions thereof shall be deemed to be incorporated by reference herein.
ARTICLE II
THE OPTION
SECTION 2.01. GRANT OF OPTION. The Company hereby grants to Purchaser
an irrevocable option (the "Option") to purchase on each Exercise Closing Date,
on the terms and subject to the conditions set forth herein, up to the number of
newly-issued shares of Common Stock (the "Shares") equal, as of the related
Exercise Date, to the number of shares of Common Stock that Ciba would be
permitted to purchase from Persons other than the Company as of such Exercise
Date under the Governance Agreement.
SECTION 2.02. EXERCISE OF OPTION. (a) The Option may be exercised by
Purchaser (or its designee, which designee must be Ciba or a direct or indirect
wholly owned Subsidiary of Ciba), in whole or in part, at any time, or from time
to time (the date of any such exercise being referred to as an "Exercise Date"),
during the period beginning upon the Closing and ending on the termination of
the Standstill Periods, so long as an Exercise Condition shall exist on such
Exercise Date; PROVIDED, HOWEVER, that Purchaser may not exercise the Option at
any time unless it owns Equity Securities (assuming full conversion or execute
thereof) representing at least 30% of the Total Voting Power. The Option may be
repeatedly exercised by Purchaser, and there shall be no limit on the number of
times the Option may be exercised or, subject to Section 2.01 with respect to
each exercise of the Option, the number of Shares that may be purchased pursuant
thereto; PROVIDED, HOWEVER, that each exercise of the Option (except in the case
of an exercise where the Exercise Condition specified in clause (iii) below is
applicable) for fewer than the maximum number of Shares then issuable pursuant
to an exercise of the Option shall be for at least that number of Shares that
results in a purchase price of $1,000,000. An "Exercise Condition" shall exist
if any of the following conditions are satisfied:
<PAGE>
5
(i) Purchaser concludes that it is in any way legally (including as a
result of any regulation) restricted from purchasing or otherwise acquiring
any Equity Securities from any Person other than the Company, including any
restriction resulting from Purchaser's possession of any non-public
material information regarding the Company (regardless of whether such
restriction would cease to exist if such information were disclosed by
Purchaser or one of its Affiliates);
(ii) Purchaser concludes that there is insufficient liquidity in the
open market to permit it to (A) purchase on the open market the amount of
Equity Securities it desires to purchase within the time period during
which it desires to make such purchases or (B) make such purchases within
such time period without such purchases unduly affecting the price of any
of such Equity Securities, in which case the Option may be exercised to the
extent of such insufficient liquidity as determined by Purchaser; or
(iii) Ciba's Percentage Interest is below 50% and Purchaser desires,
and is permitted under the Governance Agreement, to increase Ciba's
Percentage Interest to a percentage exceeding 50%;
PROVIDED that if as of any Exercise Date the only existing Exercise Condition is
the condition specified in clause (iii) above, then Purchaser shall not purchase
through the exercise of the Option on such date any Shares that would increase
Ciba's Percentage Interest to greater than 51%.
(b) In order for Purchaser to exercise the Option, Purchaser shall
give written notice to the Company of such exercise, specifying the number of
Shares to be purchased (and the denominations of the share certificate or
certificates to be issued), whether Purchaser and/or a designee of Purchaser
(which must be Ciba or a wholly owned Subsidiary of Ciba) will be purchasing
the Shares and the place, time and date of the closing of such purchase (the
"Exercise Closing Date" or the "Exercise Closing"), which date shall not be
less than two business days nor more than ten business days from the date on
which such notice is delivered.
<PAGE>
6
(c) At each Exercise Closing, the Company shall deliver to Purchaser
(or its designee) all of the Shares to be purchased by delivery of a certificate
or certificates evidencing such Shares in the denominations designated by
Purchaser in the notice required under Section 1.02(b). Each such Shares shall
bear the legend set forth in Section 3.02(d) of the Investment Agreement. If at
the time of issuance of any Shares pursuant to an exercise of all or part of the
Option hereunder, the Company shall not have redeemed the Rights (as defined in
the Rights Agreement dated as of August 29, 1994, between the Company and
Continental Stock Transfer and Trust Company, as Rights Agent), then each Share
issued pursuant to any exercise of the Option shall have attached to it Rights
or new rights with terms substantially the same as, and at least as favorable to
Ciba as, are provided under the Rights.
SECTION 2.03. PURCHASE PRICE; PAYMENT. The purchase price for any
Shares purchased pursuant to an exercise of the Option shall be the Fair Market
Value of such Shares, determined as of the business day three business days
prior to the relevant Exercise Closing. Purchaser (or, at Purchaser's option,
its designee) shall, at each Exercise Closing, deliver by wire transfer to an
account designated at least two business days in advance of such Exercise
Closing an amount equal to such purchase price.
SECTION 2.04. NOTICE OF OUTSTANDING STOCK. Until the termination of
the Standstill Periods, the Company shall, within 7 days after the end of each
month commencing with December 1994, deliver written notice to Ciba and
Purchaser of the number of Shares and the number of shares of other Voting Stock
outstanding as of the last day of such month.
SECTION 2.05. REGISTRATION RIGHTS. The Shares purchased pursuant to
the exercise of the Option shall be entitled to the registration rights provided
for in the Registration Rights Agreement.
SECTION 2.06. RESERVATION OF SHARES. THE Company shall, on each March
31, June 30, September 30 and December 31 and on the date hereof, have reserved
for issuance hereunder the maximum number of Shares that would be then issuable
if the Option were exercised in full on such date.
<PAGE>
7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser, C Corp and
Ciba as follows:
SECTION 3.01. DUE AUTHORIZATION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
(including the issuance and delivery of Shares upon any exercise of the Option)
have been duly and validly authorized by the Board of Directors of the Company
and no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally and
general equitable principles (whether considered in a proceeding in equity or at
law).
SECTION 3.02. SHARES. Subject to Section 3.03, the Company has taken
all necessary corporate and other action to authorize, and to permit it to
deliver the full number of Shares purchasable hereunder. All of such Shares
shall be duly authorized, validly issued, fully paid and nonassessable and will
be approved for quotation on the Nasdaq National Market, or for quotation or
listing on the principal trading market for the Common Stock at the time of
issuance. Upon delivery of such Shares they shall be free and clear of all
claims, liens, encumbrances, security interests and charges of any nature
whatsoever and shall not be subject to any preemptive right of any shareholder
of the Company except as expressly set forth in the Governance Agreement.
SECTION 3.03. NO CONFLICTS. Except for filings under the HSR Act, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state, Federal or foreign public body or authority is necessary
for the execution of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby (including the exercise of the
Option) and
<PAGE>
8
(B) neither the execution and delivery of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (including
the exercise of the Option) nor compliance by the Company with any of the
provisions hereof shall (x) conflict with or result in any breach of, or require
any vote under, any provision of the Certificate of Incorporation of the Company
or the By-laws of the Company, (y) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any third party right of termination, cancelation, material modification
or acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound or (z)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or its Subsidiaries or any of their properties or
assets, except in the case of (y) or (z) for violations, breaches or defaults
which would not, in the aggregate, have a material adverse effect on the
business, assets, results of operations or financial condition of the Company
and its subsidiaries taken as a whole or materially impair the ability of the
Company to perform its obligations hereunder.
SECTION 3.04. BOARD ACTION. This Agreement has been approved by a
two-thirds vote of the "Continuing Directors" (as defined in Article ELEVENTH of
the Company's Certificate of Incorporation).
SECTION 3.05. GOOD STANDING The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to execute, deliver
and perform this Agreement.
<PAGE>
9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
CIBA, C CORP AND PURCHASER
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF CIBA, C CORP AND
PURCHASER. Each of Ciba, C Corp and Purchaser hereby represents and warrants to
the Company as to itself as follows:
(a) DUE AUTHORIZATION. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by the Closing Date
will have been duly and validly authorized by its Board of Directors and no
other corporate proceedings on its part are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by it and constitutes a valid
and binding agreement of it, enforceable against it in accordance with its terms
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and general equitable principles (whether considered
in a proceeding in equity or at law).
(b) NO CONFLICTS. Except for filings under the HSR Act, if applicable,
(i) no filing with, and no permit, authorization, consent or approval of, any
state, Federal or foreign public body or authority is necessary for the
execution of this Agreement by it and the consummation by it of the transactions
contemplated hereby (including the exercise of the Option) and (ii) neither the
execution and delivery of this Agreement by it nor the consummation by it of the
transactions contemplated hereby (including the exercise of the Option) nor
compliance by it with any of the provisions hereof shall (x) conflict with or
result in any breach of, or require any vote under, any provision of its
Certificate of Incorporation or its By-laws, (y) result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any third party right of termination, cancelation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which it or any of its Subsidiaries is a party or by
which any of them or any of their properties or
<PAGE>
10
assets may be bound or (z) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to it or its Subsidiaries or any of their
properties or assets, except in the case of (y) or (z) for violations, breaches
or defaults which would not, in the aggregate, have a material adverse effect on
the business, assets, results of operations or financial condition of it and its
Subsidiaries taken as a whole or materially impair its ability to perform its
obligations hereunder.
(c) GOOD STANDING. It is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to execute,
deliver and perform this Agreement.
SECTION 4.02. REPRESENTATION AND WARRANTY OF PURCHASER. Purchaser
hereby represents and warrants to the Company that any Shares acquired by
Purchaser hereunder will be acquired for investment only and not with a view to
any public distribution of all or any portion thereof, and Purchaser will not
offer to sell or otherwise dispose of all or any portion of such Shares in
violation of any of the registration requirements of the Securities Act.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. CONDITIONS PRECEDENT. The Purchaser's obligation to
purchase any Shares upon the exercise of the Option is subject to the
satisfaction (or waiver by Purchaser) as of the applicable Exercise Closing Date
of the following conditions:
(a) The representations and warranties of the Company made in this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the applicable Exercise Closing Date with the
same effect as if made at and as of such Exercise Closing Date, except to
the extent such representations and warranties expressly relate to an
earlier time. The Company shall have performed in all material respects the
covenants and agreements of the Company contained in the this Agreement,
the Investment Agreement, the Governance Agreement and each of the other
Ancillary Agreements required to be performed at
<PAGE>
11
or prior to the applicable Exercise Closing and no default, or event which
would, with the giving of notice or the passage of time or both, constitute
a default, shall have occurred and be continuing thereunder. Purchaser
shall have received a certificate from a senior officer of the Company
dated such Exercise Closing Date, as to the satisfaction of this Section
5.01.
(b) The company shall have obtained or made all consents, approvals,
orders, licenses, permits and authorizations of, and registrations,
declarations and filings with, any governmental authority or any other
Person required to be obtained or made by or with respect to the Company in
connection with such sale.
(c) No injunction, decree or order of any governmental authority shall
be in effect as of the applicable Exercise Closing, and no lawsuit, claim,
proceeding or investigation shall be pending or threatened by any
governmental authority as of such Exercise Closing, which would restrain or
prohibit the issuance and sale of the applicable Shares.
(d) The issuance and sale of the applicable Shares shall not violate,
or cause the violation of, any applicable law or regulations.
The failure to satisfy (or waive) any of the foregoing conditions as
of any Exercise Closing Date and the resulting cancellation of the purchase and
sale of the Shares proposed to be sold to Purchaser on such date shall not
prohibit Purchaser from again exercising the Option. In the event that there
shall be in effect as of any Exercise Closing any injunction, decree or order
referred to in Section 5.01(c), the Company or Purchaser, as applicable, shall
use all reasonable efforts to have such injunction, decree or order vacated or
reversed.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. FURTHER ASSURANCES. From time to time, at any of the
other parties' request and without further consideration, each party hereto
shall execute and deliver such additional documents, transfers, assignments,
<PAGE>
12
endorsements, consents and other instruments and take all such further action as
may be necessary or desirable to consummate the transactions contemplated by
this Agreement, including, without limitation, to vest in Purchaser good title
to any Shares purchased hereunder.
SECTION 6.02. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by cable,
facsimile transmission, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 6.02) specified in Section
7.02 of the Investment Agreement.
SECTION 6.03. AMENDMENTS; WAIVERS. (a) No provision of this Agreement
may be amended or waived unless such amendment or waiver is in writing and
signed, in the case of an amendment, by the parties hereto, or in the case of a
waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 6.04. SEVERABILITY. If any term or provision of this
Agreement or the application thereof to either party or set of circumstances
shall, in any jurisdiction and to any extent, be finally held invalid or
unenforceable, such term or provision shall only be ineffective as to such
jurisdiction, and only to the extent of such invalidity or unenforceability,
without invalidating or rendering unenforceable any other terms or provisions
of this Agreement or under any other circumstances, and the parties shall
negotiate in good faith a substitute provision which comes as close as
possible to the invalidated or unenforceable term or provision, and which
puts each party in a position as nearly comparable as possible to the
position it would have been in but for the finding of
<PAGE>
13
invalidity or unenforceability, while remaining valid and enforceable.
SECTION 6.05. ENTIRE AGREEMENT; ASSIGNMENT. (a) The Investment
Agreement, the Governance Agreement, this Agreement, the Registration Rights
Agreement, the other Ancillary Agreements and the agreements contemplated hereby
and thereby, constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements and undertakings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Except as specifically provided herein with respect to any
designee of Purchaser exercising the Option, none of the parties to this
Agreement shall assign any of its rights or obligations hereunder without the
prior written consent of the other parties hereto, except that Ciba and
Purchaser may assign all or any of its rights and obligations hereunder to
any wholly owned subsidiary of Parent that agrees in writing to be bound by
the provisions hereof; PROVIDED that no such assignment shall relieve Parent
or Purchaser of their obligations hereunder.
SECTION 6.06. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person, other than the parties hereto and their respective permitted successors
and assigns, any right, benefit or remedy of any nature or kind whatsoever under
or by reason of this Agreement.
SECTION 6.07. SPECIFIC PERFORMANCE. The parties hereto recognize and
agree that immediate irreparable damages for which there is no adequate remedy
at law would occur in the event that any provision of this Agreement is not
performed in accordance with the specific terms hereof or is otherwise breached.
It is accordingly agreed that in the event of a failure by a party to perform
its obligations under this Agreement, the nonbreaching party shall be entitled
to specific performance through injunctive relief to prevent breaches of the
provisions of this Agreement and to enforce specifically the provisions of this
Agreement in any action instituted in any court having subject matter
jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity.
<PAGE>
14
SECTION 6.08. GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware
applicable to contracts executed and to be fully performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall be
brought by the parties and heard and determined only in a Delaware state
court or a federal court sitting in that State and the parties hereto consent
to jurisdiction before and waive any objections of venue to the Delaware
Chancery Court.
SECTION 6.09. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same agreement.
SECTION 6.10. WAIVER OF JURY TRIAL. The parties hereto each hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of any party hereto in the
negotiation, administration, performance and enforcement thereof.
IN WITNESS WHEREOF, the Company, Ciba, C Corp and Purchaser have
caused this Agreement to be duly executed as of the day and year first above
written.
CIBA-GEIGY LIMITED,
by /s/ Alex Krauer
-------------------------------------
Name:
Title:
by /s/ John Cheesmond
-------------------------------------
Name:
Title:
<PAGE>
15
CIBA BIOTECH PARTNERSHIP, INC.,
by /s/ McGraw
-------------------------------------
Name:
Title:
CIBA-GEIGY CORPORATION,
by /s/ McGraw
-------------------------------------
Name:
Title:
CHIRON CORPORATION,
by /s/ William J. Rutter
-------------------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION UNAUDITED CONDENSED COLSOLIDATED BALANCE SHEET DATED JUNE 30, 1999
AND UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999<F5>
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999<F5>
<CASH> 47,534
<SECURITIES> 1,431,992<F1>
<RECEIVABLES> 179,286
<ALLOWANCES> 0
<INVENTORY> 93,233
<CURRENT-ASSETS> 1,137,303
<PP&E> 538,129
<DEPRECIATION> 218,438
<TOTAL-ASSETS> 2,400,600
<CURRENT-LIABILITIES> 380,947
<BONDS> 349,145<F2>
0
0
<COMMON> 1,815
<OTHER-SE> 1,606,813<F3>
<TOTAL-LIABILITY-AND-EQUITY> 2,400,600
<SALES> 194,289
<TOTAL-REVENUES> 364,670
<CGS> 84,635
<TOTAL-COSTS> 84,635
<OTHER-EXPENSES> 149,304<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,708
<INCOME-PRETAX> 75,584
<INCOME-TAX> 18,112
<INCOME-CONTINUING> 57,472
<DISCONTINUED> 3,009
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,481
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.33
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES.
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES AND NOTES PAYABLE, NET OF
CURRENT MATURITIES.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, COST OF TREASURY
STOCK, AND ACCUMULATED OTHER COMPREHENSIVE LOSS.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT, RESTRUCTURING AND REORGANIZATION CHARGES
AND OTHER OPERATING EXPENSES.
<F5>DURING THE FIRST QUARTER OF 1999, THE COMPANY CHANGED ITS FISCAL YEAR FROM A 52
OR 53-WEEK YEAR ENDING ON THE SUNDAY NEAREST THE LAST DAY IN DECEMBER, TO A
CALENDAR YEAR ENDING ON DECEMBER 31.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET DATED MARCH 31,
1999 AND UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999<F5>
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999<F5>
<CASH> 69,146
<SECURITIES> 1,368,279<F1>
<RECEIVABLES> 184,032
<ALLOWANCES> 0
<INVENTORY> 80,842
<CURRENT-ASSETS> 1,115,743
<PP&E> 526,089
<DEPRECIATION> 208,588
<TOTAL-ASSETS> 2,373,340
<CURRENT-LIABILITIES> 385,470
<BONDS> 339,259<F2>
0
0
<COMMON> 1,815
<OTHER-SE> 1,570,453<F3>
<TOTAL-LIABILITY-AND-EQUITY> 2,373,340
<SALES> 92,967
<TOTAL-REVENUES> 175,560
<CGS> 43,876<F6>
<TOTAL-COSTS> 43,876<F6>
<OTHER-EXPENSES> 74,988<F4><F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,845<F6>
<INCOME-PRETAX> 31,748
<INCOME-TAX> 8,010
<INCOME-CONTINUING> 23,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,738
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES.
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASE OBLIGATIONS
AND NOTES PAYABLE, NET OF CURRENT MATURITIES.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT AND ACCUMULATED
OTHER COMPREHENSIVE LOSS.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT, RESRUCTURING AND REORGANIZATION CHARGES
AND OTHER OPERATING EXPENSES.
<F5>DURING THE FIRST QUARTER OF 1999, THE COMPANY CHANGED ITS FISCAL YEAR FROM A
52 OR 53-WEEK YEAR ENDING ON THE SUNDAY NEAREST THE LAST DAY IN DECEMBER, TO A
CALENDAR YEAR ENDING ON DECEMBER 31.
<F6>DURING THE SECOND QUARTER OF 1999, THE COMPANY COMPLETED THE IMPLEMENTATION
OF AN INTEGRATED INFORMATION SYSTEM. AS A RESULT, CERTAIN PREVIOUSLY REPORTED
AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM WITH THE JUNE 30, 1999 PRESENTATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION CONSOLIDATED BALANCE SHEET DATED DECEMBER 31, 1998 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998<F7>
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998<F7>
<CASH> 513,315
<SECURITIES> 1,076,688<F1><F8>
<RECEIVABLES> 183,778<F8>
<ALLOWANCES> 16,190<F8>
<INVENTORY> 79,862<F8>
<CURRENT-ASSETS> 1,630,942<F8>
<PP&E> 501,183<F8>
<DEPRECIATION> 198,102<F8>
<TOTAL-ASSETS> 2,524,264<F8>
<CURRENT-LIABILITIES> 557,435<F8>
<BONDS> 338,158<F2>
0
0
<COMMON> 1,799
<OTHER-SE> 1,544,003<F3><F8>
<TOTAL-LIABILITY-AND-EQUITY> 2,524,264<F8>
<SALES> 399,251
<TOTAL-REVENUES> 736,673
<CGS> 182,403<F8>
<TOTAL-COSTS> 182,403<F8>
<OTHER-EXPENSES> 326,812<F4><F8>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,673
<INCOME-PRETAX> 94,983
<INCOME-TAX> 18,985
<INCOME-CONTINUING> 75,998
<DISCONTINUED> 448,115
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524,113
<EPS-BASIC> 2.95<F5>
<EPS-DILUTED> 2.90<F6>
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES.
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASE OBLIGATIONS
AND NOTES PAYABLE, NET OF CURRENT MATURITIES.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, AND ACCUMULATED
OTHER COMPREHENSIVE INCOME.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT, WRITE-OFF OF PURCHASED IN-PROCESS
TECHNOLOGIES, RESTRUCTURING AND REORGANIZATION CHARGES AND OTHER OPERATING
EXPENSES.
<F5>REPRESENTS BASIC NET INCOME PER SHARE, BASIC INCOME PER SHARE FROM CONTINUING
OPERATIONS AND BASIC INCOME PER SHARE FROM DISCONTINUED OPERATIONS WERE $0.43
AND $2.52, RESPECTIVELY.
<F6>REPRESENTS DILUTED NET INCOME PER SHARE. DILUTED INCOME PER SHARE FROM
CONTINUING OPERATIONS AND DILUTED INCOME PER SHARE FROM DISCONTINUED OPERATIONS
WERE $0.42 AND $2.48, RESPECTIVELY.
<F7>ACTUAL FISCAL YEAR END WAS JAN-03-1999. FOR PRESENTATION PURPOSES, DATES USED
IN THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES REFER TO THE FISCAL MONTH
END.
<F8>DURING THE SECOND QUARTER OF 1999, THE COMPANY COMPLETED THE IMPLEMENTATION
OF AN INTEGRATED INFORMATION SYSTEM. AS A RESULT, CERTAIN PREVIOUSLY REPORTED
AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM WITH THE JUNE 30, 1999 PRESENTATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET DATED JUNE 30, 1998
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998<F5>
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998<F5>
<CASH> 158,120
<SECURITIES> 254,859<F1>
<RECEIVABLES> 328,132
<ALLOWANCES> 0
<INVENTORY> 170,231
<CURRENT-ASSETS> 848,427
<PP&E> 765,364
<DEPRECIATION> 283,432
<TOTAL-ASSETS> 1,802,840
<CURRENT-LIABILITIES> 378,088
<BONDS> 402,312<F2>
0
0
<COMMON> 1,775
<OTHER-SE> 987,615<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,802,840
<SALES> 165,278
<TOTAL-REVENUES> 296,177
<CGS> 73,399<F8>
<TOTAL-COSTS> 73,399<F8>
<OTHER-EXPENSES> 140,436<F8><F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,629
<INCOME-PRETAX> 29,327
<INCOME-TAX> 1,683
<INCOME-CONTINUING> 27,644
<DISCONTINUED> 52,224
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,868
<EPS-BASIC> 0.45<F6>
<EPS-DILUTED> 0.44<F7>
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES.
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASE OBLIGATIONS
AND NOTES PAYABLE, NET OF CURRENT MATURITIES.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, AND ACCUMULATED
OTHER COMPREHENSIVE LOSS.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT, WRITE-OFF OF PURCHASED IN-PROCESS
TECHNOLOGIES, RESTRUCTURING AND REORGANIZATION CHARGES AND OTHER OPERATING
EXPENSES.
<F5>ACTUAL FISCAL YEAR END WAS JAN-03-1999. ACTUAL INTERIM PERIOD END WAS
JUNE 28, 1998. FOR PRESENTATION PURPOSES, DATES USED IN THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES REFER TO THE FISCAL MONTH END.
<F6>REPRESENTS BASIC NET INCOME PER SHARE. BASIC INCOME PER SHARE FROM CONTINUING
OPERATIONS FOR THE SIX MONTHS ENDED JUN-30-1998 WAS $0.16. BASIC INCOME PER
SHARE FROM DISCONTINUED OPERATIONS FOR THE SIX MONTHS ENDED JUN-30-1998 WAS
$0.29.
<F7>REPRESENTS DILUTED NET INCOME PER SHARE. DILUTED INCOME PER SHARE FROM
CONTINUING OPERATIONS FOR THE SIX MONTHS ENDED JUN-30-1998 $0.15. DILUTED
INCOME PER SHARE FROM DISCONTINUED OPERATIONS FOR THE SIX MONTHS ENDED
JUN-30-1998 WAS $0.29.
<F8>DURING THE SECOND QUARTER OF 1999, THE COMPANY COMPLETED THE IMPLEMENTATION OF
AN INTEGRATED INFORMATION SYSTEM. AS A RESULT, CERTAIN PREVIOUSLY REPORTED
AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM WITH THE JUNE 30, 1999 PRESENTATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET DATED MARCH 31,
1998 AND UNAUDITED CONDENSED CONSOLIDATED STATMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998<F5>
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998<F5>
<CASH> 177,590
<SECURITIES> 270,727<F1>
<RECEIVABLES> 295,532
<ALLOWANCES> 0
<INVENTORY> 133,224
<CURRENT-ASSETS> 863,843
<PP&E> 724,254
<DEPRECIATION> 256,123
<TOTAL-ASSETS> 1,755,401
<CURRENT-LIABILITIES> 366,121
<BONDS> 400,072<F2>
0
0
<COMMON> 1,771
<OTHER-SE> 964,056<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,755,401
<SALES> 69,220
<TOTAL-REVENUES> 133,287
<CGS> 28,213<F8>
<TOTAL-COSTS> 28,213<F8>
<OTHER-EXPENSES> 71,558<F8><F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,580
<INCOME-PRETAX> 11,407
<INCOME-TAX> 3,865
<INCOME-CONTINUING> 7,542
<DISCONTINUED> 46,939
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,481
<EPS-BASIC> 0.31<F6>
<EPS-DILUTED> 0.30<F7>
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES.
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASE OBLIGATIONS
AND NOTES PAYABLE, NET OF CURRENT MATURITIES.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT. ACCUMULATED
OTHER COMPREHENSIVE LOSS AND NOTES RECEIVABLE FROM STOCK SALES.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT, RESTRUCTURING AND REORGANIZATION
CHARGES AND OTHER OPERATING EXPENSES.
<F5>ACTUAL FISCAL YEAR END WAS JAN-03-1999. ACTUAL PERIOD END WAS MAR-29-1998
FOR PRESENTATION PURPOSES, DATES USED IN THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES REFER TO THE FISCAL MONTH END.
<F6>REPRESENTS BASIC NET INCOME PER SHARE. BASIC INCOME PER SHARE FROM CONTINUING
OPERATIONS FOR THE THREE MONTHS ENDED MAR-31-1998 WAS $0.04. BASIC INCOME PER
SHARE FROM DISCONTINUED OPERATIONS FOR THE THREE MONTHS ENDED MAR-31-1998 WAS
$0.27.
<F7>REPRESENTS DILUTED NET INCOME PER SHARE. DILUTED INCOME PER SHARE FROM
CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED MAR-31-1998 WAS $0.04.
DILUTED INCOME PER SHARE FROM DISCONTINUED OPERATIONS FOR THE THREE MONTHS
ENDED MAR-31-1998 WAS $0.26.
<F8>DURING THE SECOND QUARTER OF 1999, THE COMPANY COMPLETED THE IMPLEMENTATION OF
AN INTEGRATED INFORMATION SYSTEM. AS A RESULT, CERTAIN PREVIOUSLY REPORTED
AMOUNTS HAVE BEEN RECLASSIFIED TO CONFORM WITH THE JUNE 30, 1999 PRESENTATION.
</FN>
</TABLE>
